How might interest rates impact real estate markets?

In the context of real estate markets, interest rates play a crucial role in determining affordability. When interest rates rise, borrowing becomes more expensive for potential homebuyers. This increased cost can strain budgets and make it less feasible for many individuals to qualify for a mortgage. As a consequence, higher rates typically result in decreased affordability, meaning fewer buyers are able to enter the market or move up to more expensive properties.

This decline in buyer demand can lead to a slowdown in the real estate market, where sellers may face longer times on the market or may need to lower prices to attract buyers. Moreover, if fewer people are purchasing homes, it can create downward pressure on home values, leading to a more cautious real estate environment.

In summary, higher interest rates often lead to lower affordability, which directly results in reduced buyer activity in the real estate market.