What is the impact of interest rates on real estate sales?

Higher interest rates can significantly decrease buyer affordability, which is why this choice is the correct one. When interest rates rise, the cost of borrowing money to finance a home purchase increases. This results in higher monthly mortgage payments for buyers, which can lead to a situation where potential homeowners find themselves unable to afford homes that may have once been within their budget. As affordability declines, fewer buyers are likely to enter the market, which can lead to a decrease in overall real estate sales.

Your understanding of the relationship between interest rates and real estate dynamics ties into broader economic principles, where increased borrowing costs can dampen buyer enthusiasm and slow down market activity. The implication is clear: as interest rates go up, the pool of buyers shrinks, and this can lead to a downward pressure on home sales, impacting the overall real estate market.

In contrast, lower interest rates generally make home buying more affordable, allowing for increased buyer demand. The assertion that interest rates have no impact on real estate sales does not align with economic evidence, as real estate markets are sensitive to changes in borrowing costs. Therefore, the context supports how rising interest rates affect affordability and consequently influence sales figures.