How do rising interest rates generally affect property values?

Rising interest rates generally lead to lower property demand and reduced values due to the increased cost of borrowing. When interest rates increase, mortgage rates also rise, making it more expensive for buyers to finance home purchases. This added cost can deter prospective buyers from entering the market, reducing demand for properties.

As demand decreases, sellers may need to lower prices to attract buyers, leading to a reduction in property values overall. Higher interest rates can also result in a shift in investor sentiment, making real estate less appealing compared to other investment opportunities with potentially higher returns. Consequently, the combination of reduced buyer interest and increased mortgage costs typically culminates in lower property values.

This dynamic highlights the interconnectedness of financing costs and real estate market conditions, emphasizing how financial shifts directly impact property demand and valuation.