Mortgage decisions in a volatile market
Buying a home is a more intricate process than many expect, especially in today’s climate where both the economy and the housing sector face delicate moments. It’s wise to consider expert opinions before diving into a home purchase.
Gonzalo Bernardos, a professor of economics at the University of Barcelona and a familiar presence in media outlets like RAC1 and La Sexta, has recently shared his perspective on the housing market.
In recent days, some experts have suggested there is near unanimity that interest rates will fall starting in June. Bernardos, however, cautions potential buyers to act quickly. He argues that when rates drop, housing prices tend to rise, and the savings from lower rates may be offset by higher home prices.
The economist also warned of a coming real estate boom, characterized by a substantial uptick in transactions and prices. He predicts a “mortgage war” that would trigger a notable decline in mortgage rates, even as borrowing costs rise on the principal price of homes.
Interest rates and the price of money
The interest rates set by the European Central Bank (ECB) are a central tool of monetary policy, influencing how much money costs within the euro area. These rates represent the price at which the central bank lends money to commercial banks and, in turn, affect the interest rates faced by consumers and businesses on loans and savings. By adjusting these rates, the ECB aims to control inflation and maintain economic stability.
When the ECB increases rates, borrowing becomes more expensive. Mortgages, tied to these rates, will see higher charges as banks pass on additional costs to consumers, raising monthly payments. This dynamic can dampen demand for new credit and reduce household spending, which may weigh on the housing market.
Conversely, when the ECB lowers rates, borrowing costs fall. Cheaper loans can stimulate demand for homes and spur economic activity. For consumers, an environment of low interest rates is favorable for purchasing property since monthly mortgage payments are more affordable, easing access to financing.