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Mortgage interest rates change often. They change due to a large variety of factors including the supply and demand of homes and the state of the Federal Reserve. But do those fluctuating interest rates affect the housing market?

They do – they have a very large impact.


Most buyers need financing to buy a home. In order to do so, they’ll pay interest. The higher the interest rate, the more a buyer’s mortgage payment will be. It also means that borrowing the money will cost the buyer more in the end.

If interest rates increase too much, buyers become less willing to buy a home. They will wait until the interest rates fall so that they can borrow money at a more affordable rate. This doesn’t mean that when interest rates rise a little bit that buyers stop looking at homes. It’s when the rates increase dramatically that buyers tend to stop looking at homes.


Interest rates also have an effect on the demand for housing. If interest rates are low, there is a higher interest in buying a home. This drives up the demand for homes. This could drive up the price as buyers keep bidding higher prices for the home.

When interest rates get too high, though, buyers stop having such high demand for homes. As the market slows, the price of the homes will start to fall as it becomes a buyer’s market rather than a seller’s market.


Even though interest rates can have an effect on the housing market, it all works out to be the same in the end. If things get out of control, the Fed will step in and adjust interest rates so that the housing market is under control.

While there are always peaks and valleys in the demand for houses, the interest rates vary based on other factors. Sometimes the housing market will respond to the change in interest rates and other times it won’t be affected at all.

The best thing you can do is wait for the rate that is the most affordable for you. If you watch housing prices and interest rates carefully, you can work it out to get the mortgage payment that is the best for you. As always, make sure you shop around to find the lender that suits your needs the most by offering the best interest rate and the best closing costs for your situation.