Real Estate

Capital Economics: Expect home prices to increase as mortgage rates drop

Forecasts a 3% increase in prices by end of year

For the last two weeks Freddie Mac reported 30-year, fixed-rate mortgages averaging 3.6%, a three-year low.

For reference, the 2018 average from this time last year sat at 4.53%. These low rates, combined with a low housing inventory will lead to an increase in home prices, Capital Economics said in a report on Monday. The report predicts a 3% increase.

As with any other asset, lower interest rates will act to boost home values,” Capital Economics reported. “Other things equal, with a given income and debt-to-income (DTI) ratio, a lower interest rate raises the amount a household can spend on a home.”

At the beginning of the year, Capital Economics originally predicted a rise in prices of 2% over 2019. The economic research consultancy admits it did not forsee the 30-year rate dropping below 4% this year. With the magnitude of the drop, Capital Economics is now edging home prices up a percentage point from its original forecast. 

The report goes on to state that there are many more factors that play into home prices, and concedes that the previous relationship between house price growth and changes in interest rates is weak. 

“The upcoming economic slowdown will weigh on job creation and earnings, and increased caution among potential buyers means they will be less willing to bid aggressively for a home,” the report said. “Indeed, house price expectations have not recovered as interest rates have declined.”

 

Latest Articles

Equifax expects to pay out another $100 million for data breach

The Department of Justice says it knows who hacked Equifax and exposed the sensitive personal information of 148 million consumers, but that doesn’t mean the breach is behind Equifax quite yet.

Feb 14, 2020 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please