Interest
Rates
Interest 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.