“As with any other asset, lower interest rates will act to boost home values,” Capital Economics reported. “Other things equal, with a given income and debt-to-income (DTI) ratio, a lower interest rate raises the amount a household can spend on a home.
At the beginning of the year, Capital Economics originally predicted a rise in prices of 2% over 2019. The economic research consultancy admits it did not forsee the 30-year rate dropping below 4% this year.
“The upcoming economic slowdown will weigh on job creation and earnings, and increased caution among potential buyers means they will be less willing to bid aggressively for a home,” the report said. “Indeed, house price expectations have not recovered as interest rates have declined.