Affiliate Broker Tennessee (TN PSI) National Practice Exam `

When interest rates are high, what is the likely impact on buyers?

1. They are incentivized to buy more properties.

2. They are often priced out of the market.

3. They typically purchase vacation homes.

4. They are less likely to invest in rentals.

The correct answer is: They are often priced out of the market.

When interest rates are high, the cost of borrowing increases. This means that potential buyers will face higher monthly mortgage payments, which can significantly affect their budget and purchasing power. As a result, many buyers may find themselves unable to afford homes that they could have previously considered when interest rates were lower. This scenario often leads to buyers being priced out of the market, making option B the most accurate choice. The other options do not reflect the typical behavior of buyers in a high-interest-rate environment. Higher rates do not incentivize buyers to purchase more properties since the cost of financing is greater. Similarly, while some may still consider purchasing vacation homes, this is less common as higher interest costs can diminish disposable income. Lastly, although some might reassess their investment strategies, declaring that buyers are less likely to invest in rentals does not universally apply, as many investors might adapt their strategies to continue exploring property purchases even in a high-rate environment.