An article in the Wall Street Journal on the housing market states that "Steady job growth, rising wages and low interest rates have helped prop up housing demand." Source: Steven Russolillo, "Why the Housing Market is Getting Stronger," Wall Street Journal, May 22, 2016. Why do low interest rates increase the demand for housing?

Solution and Explanation:

Since interest rate is the cost of borrowing, lower interest rate decreases the cost of borrowing for housing mortgage, which increases demand for housing.

It is very much clear from the demand and interest rate have a certain relationship. If the interest rate on a particular amount is lower then the customers will try to get more amount as the cost on such amount will be less which means the burden on the customers would be lower.

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