The Effects of Interest Rates

Over the last three months national interest rates have increased from 5.75% to 6.30%. In markets such as New York and Los Angeles interest have followed rather steadily causing housing prices in these areas to continue to drop. As housing prices drop consumers that purchased their homes a couple years ago during the big boom have found themselves with homes they can no longer afford causing an extremely high rate of foreclosures in markets especially markets where the boom was high.

Foreclosures occur when home owners owe the bank more than their home is actually worth and they can no longer afford to make payments on their interest and principle. Home owners are left with a net worth that continues to get smaller and smaller as the price of their home depreciates and a home that they have a hard time selling on the market.

Home sales also continue to decrease and the National Association of Realtors announced at the end of July that home sales have decreased 3.8% since June.

Although all this sounds like bad news there is a bright side, housing prices continue to drop and new buyers can take advantage of this opportunity as well as take advantage of foreclosures and buy a home (especially in the New York Real Estate area) that they may have not been able to afford only a year ago. Smart investors will be able to buy at this most opportune time and as we have seen in history housing prices fluctuate and in growing areas and growing economies one could hope to sit back and relax as their home value increases.