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Low Interest Rates and Lack of Available Homes Drive Up Property Prices

After bottoming out a little over a year ago, home prices have been on a steady upswing, recently posting an 4.49% gain year-over-year as of July 2015, according to the Standard & Poor’s/Case-Shiller Home Price Index. This trend is likely to continue as the inventory of homes for sale remains tight through spring.

Although rising prices are drawing some sellers to the market, many more are holding out for stronger price gains.  These sellers fear prices will continue to rise after selling their property, causing them to lose profit if they sell too soon.  This factor, combined with a lower number of foreclosures on the market than previous years, is limiting buyer choice and ultimately dampening gains in home sales.  While buyers want to purchase a home before prices and mortgage rates go up too much, sellers are waiting for strong price gains, creating a stalemate.

During the last six months, a large number of homeowners who were considering selling with the intent to downsize have instead refinanced to take advantage of the current low rates.  Even a small drop of just 1%-2% in interest can typically save a homeowner several thousands of dollars per year. This group of homeowners are saving big money on their mortgages now and consequently not listing their home for sale.  The end result is that the trend towards refinance has had a dramatic impact on the available inventory of homes for sale.

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