There is one factor that current home prices rely on for their stability and this is buyer confidence. In a report from theguardian.com, if interest rates start increasing, then this affects buyer confidence in the market which in turn starts a domino effect affecting all the stakeholders in the industry.
Once buyer confidence is shaken, homebuyers can kiss the 0.99 percent mortgages on their homes. Investors would start pulling out their finds as the bond funds start to tumble and most of all, real estate agents would see their customary long lines of inquiries dry up.
Buyer confidence in the UK is very finicky, as it will start to move even with rumors of an interest rate base would be increased by the Bank of England. Even with a rumor, mortgage lenders would change the price of the mortgages at a moment's notice. With current two year base rates fixed at 1.29 percent and the five year base rate is at 2.18 percent, any sort of wind in interest rates increase would have these record low interest rates evaporate immediately.
Then the ugly side of the realty business would come to fore, which include repossessions as well as bank forebearance, last seen in the recession of 2008.
Across the Pond, US buyer confidence in the housing market in July has been at record rates last seen in November 2005. In a report from Bloomberg.com, this was seen in the US market after the National Association of Home Builders/Wells Fargo registered a sentiment gauge reading of 60 for June.
This gauge was echoed by Moody's Analytics Inc's Senior Economist Ryan Sweet, who said, "The housing market is showing clear signs of improvement. We still have a long way to go before we get too excited but we're heading in the right direction."
A measure of above 50 in the aforementioned gauge means that respondents see that the market conditions are good leading to increased buyer confidence.