What effect do rising mortgage interest rates typically have on property values?

Rising mortgage interest rates typically lead to lower property values due to increased borrowing costs for potential homebuyers. When mortgage rates rise, monthly payments on loans become higher, which can reduce the affordability of homes. As a result, some buyers may be priced out of the market or choose to wait for better financing conditions, leading to decreased demand for properties.

This reduction in demand can cause sellers to lower their asking prices to attract buyers, subsequently affecting the overall market value of properties. Additionally, higher interest rates can contribute to market uncertainty, further dampening buyer enthusiasm and thereby exerting downward pressure on property values. The interconnectedness of interest rates and housing affordability plays a significant role in shaping real estate market dynamics, underscoring why rising mortgage rates can trigger a decline in property values.