What impact do increased borrowing costs typically have on property values?

Increased borrowing costs generally lead to lower property values primarily due to the relationship between interest rates, mortgage affordability, and buyer demand. When borrowing costs rise, potential buyers face higher monthly mortgage payments, which can deter them from purchasing property or limit the amount they can afford. This reduction in demand typically results in downward pressure on property prices, as sellers may need to lower their asking prices to attract buyers in a more expensive borrowing environment.

Furthermore, when financing a home becomes costlier, investors may also pull back, navigating to other investment opportunities that may offer better returns relative to the increased risk and costs associated with higher interest rates. This shift can further contribute to a decline in property values. Overall, as borrowing costs increase, the affordability of homes decreases, affecting demand and ultimately leading to lower property values.