What effect do low interest rates and easy access to credit typically have on housing demand?

• A. Increase demand
• B. Decrease demand
• C. No effect
• D. Increase supply only

Answer: (A)

Lower borrowing costs and easier credit expand the number of people who can afford to buy a home. When interest rates are low, monthly mortgage payments for the same loan amount are smaller, so buyers can qualify for larger loans or purchase more expensive homes without raising their monthly costs. Easy access to credit means more applicants get approved, increasing the pool of potential buyers. Both factors together boost demand for housing, often lifting both the number of transactions and prices over time. The other scenarios don’t fit: higher rates or tighter credit would suppress demand, and increasing supply alone corresponds to builders’ activity, not buyers’ ability to borrow.