Answer to Question #27295 in Economics of Enterprise for Ashley

Question

Declining interest rates for home mortgages in any given market should do what to the demand curve for residential homes?

Answer 1

As both the absolute level and the direction of interest rates are the greatest factors influencing the supply of and demand for residential real estate, they are therefore the single greatest determinant of residential real estate prices. Rising interest rates will dampen housing demand while simultaneously increasing housing supply. And if the interest rates decline it will increase demand for residential real estate and simultaneously decrease the supply of housing.