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Do Interest Rates Affect Home Prices?

Do Interest Rates Affect Home Prices? | Tampa Home Price Guide

When the Federal Reserve cuts or raises the interest rate, much of the media coverage is about how this will impact the financial markets. But these moves impact the real estate market just as much – perhaps even more.

Home prices in Tampa and Florida are impacted as much as anywhere else. Anyone looking to prepare a Tampa Home Price Guide or put an accurate assessment on their own home price will want to factor in the effect of interest rates.

The same goes for homes in Wesley Chapel, Lutz, Land O’ Lakes and individual neighborhoods such as Carrollwood and Westchase. Here’s a look at how home prices are impacted by interest rates, including actions that homeowners can take as the rates rise and fall.

How Interest Rates Impact Home Prices

Here’s a look at some of the ways the interest rate impacts homeowners in Tampa.

Capital Flow

It’s easier for people to get access to capital when the interest rates are low for the simple reason that it means they will owe less and acquire less debt. This is the primary reason the Fed lowers the interest rate. For homeowners in Tampa, this means you can expect more buyers on the market.

Property Valuation

This applies primarily to commercial property or rental properties, but sometimes prices are set by using the projected income from the property to determine the property valuation. In the case of real estate, this “income approach” would factor in the anticipated rental or mortgage payments on a property. Interest rates can change that valuation because it impacts investors interest in real estate, which in turn impacts valuations.

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Market Growth

Generally speaking, home prices increase when the overall economy is doing better – more jobs, better wages and overall growth. Lower interest rates, which stimulate the economy, can also stimulate that growth, although this is not a given. Lower interest rates can also mean that home values dip, but that is not always the case, either.

Current Home Values

The current home value in the United States is $229,500, according to Zillow. That number has increased by 5.25% in the last year. It’s expected to increase at a slower rate over the next year at around 2.2%.

In Florida, the median home price is $235,500. It is expected to increase by 2% in the coming year. In Tampa, the median home price is $219,100 and is expected to increase by 2.5% in the next year.

No predictive method on real estate prices is perfect, but Zillow uses advanced algorithms that have been accurate in the past. Home prices can fluctuate for a number of reasons, but demand is the primary driver of real estate. That’s why the market in Florida and Tampa is often stronger than other places – demand is higher in this area.

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Cash In On Home Equity

Lower interest rates typically mean more buyers on the market. That means as a homeowner, you can cash in on the home equity you’ve built up by selling. The important aspect of this plan is to know what you can make on a sale and not settle for less money than the market will bear.

Another option if you need cash for home projects is to refinance with a lower interest rate to lower payments. You can also pull out some of the equity or get a home equity line of credit through which you can finance home improvements.

These are some of the issues surrounding interest rates for homeowners. It’s important to remember that even experts disagree on how interest rates impact home prices. But they are important to keep an eye on – and for you to know ways that you can cash in on lower interest rates.

One Comment

  1. Orlando Luxury Real Estate

    on   said 

    Easy to read yet full of good information. Great! I love the content of your article it’s very detailed.


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