How Has Interest Rate Impacted Home Buyers in 2023?

The real estate market is a dynamic environment that undergoes constant shifts which are influenced by numerous factors. Among these factors, interest rates hold great importance in shaping the trends and dynamics of the housing market. 

Mortgage rates, specifically, have a substantial impact on the decision-making process for individuals looking to buy or sell homes. These interest rates are instrumental in assessing the affordability and accessibility of mortgages, ultimately influencing the purchasing capacity of prospective homebuyers. Today, we understand how these interest rates are determined, and it can impact home buyers' behaviour and, eventually, the real estate market as a whole. 

How is Interest Rate Determined?

The interest rate refers to the additional amount imposed by a lender on the principal amount lent to a borrower for the utilisation of assets. Various factors, including the state of the economy, influence the interest rate set by banks. It is the central bank of a country that establishes the interest rate, serving as a basis for each bank to determine the range of annual percentage rates (APRs) they provide. During periods of high inflation, central banks generally opt to raise interest rates. Since there is a considerable impact of interest rate on buyers' behaviour, it elevates the expense of debt, which in turn, discourages borrowing and moderates consumer demand.

The Impact of Increased Interest Rates on Home Loans

As per India.com, the average home prices were predicted to increase by 5.5 per cent and 5.0 per cent this year and the next year.

Let us have a look at the impact of interest rates on buyers will be in these years: 

Increased Home Loan Rates

Increased monthly payments (EMIs) are the result of rising home loan costs which are essentially caused by rising interest rates. And as buyers’ monthly financial obligations increase, they may find it difficult to afford homes altogether.

The resilience of India’s Housing Market

A study by Reuters.com suggested that India's housing market is expected to stay resilient, even while there has been a rise in interest rates. While inflation and interest rates may impact demand short term, the industry is poised for steady growth in the coming years. The ability to withstand external factors demonstrates the underlying strength and stability of the market.

Strong Demand in the Post-COVID-19 Era

The aftermath of the COVID-19 pandemic has triggered a heightened desire to own a house. This surge in demand has resulted in robust activity within the residential segment.

Conclusion

Understanding the impact of interest rates on buyers is crucial to know the trends in the real estate sector. Home loans with higher interest rates may be less appealing and more difficult to afford.

Nonetheless, the realty market continues to undergo a revolutionary change, with premium developers experiencing a never before seen demand. The RBI's actions in adjusting interest rates will undoubtedly shape the trajectory of the housing market, affecting both buyers and sellers in the process. 

As we navigate these factors, striking a balance and ensuring reasonable interest rates becomes essential to support India's thriving real estate sector.