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Interest RatesInterest RatesInterest rates are a closely watched economic indicator. They are driven by inflation and have a significant impact on economic sectors that require use of debt for asset acquisition such as real estate, heavy equipment, and financial services. Relatively low interest rates portend increased economic activity as the cost of acquisition declines. Low interest rates fuel home buying because the costs of owning a home (monthly mortgage payments) decrease. Cost advantages from lower rates are temporary as product prices increase to reflect elevated demand. Low rates will bring more potential buyers to the residential real estate market bidding up prices of homes and eventually erasing the cost advantage of low interest rates. Conversely, demand for products may decline as interest rates increase. Interest rates are an important component of planning because they are an indicator of economic growth and can change the viability of long-term investments. 115
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