On first blush, ultra-low lending rates would appear to be nothing but good. After all, lowering the cost of financing lowers the financing cost of purchasing a home (or any asset). 

But things aren't quite that clear cut. When interest rates are low for borrowers, they are also low for savers and investors. Investment portfolios generate less income. This means savers and investors generally have less income to spend. It also means savers and investors have to take on riskier assets to capture income that was formerly available in safer assets. This increases the likelihood of capital losses, which can impede the ability to service loan obligations. 

Closer to home, low interest rates may not be as good for home buyers as people think, even if interest income isn't a consideration. Low financing costs sound attractive, but interest rates are a discounting tool: When rates are low, asset prices rise at a quicker pace than when rates are higher. It's a wonderful benefit to see surging home prices when you're a home owner, but it's not so wonderful if you're a young buyer seeking that first home. 

All things considered, a higher level of interest rates could actually improve the overall health of the housing market more than it could harm it. 

Information provided by Jessica Regan.

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