Rising interest rates have a direct impact on the health of the real estate market. They impact both buyers and sellers looking to enter the market. While interest rates have been at record lows, the Federal Reserve recently raised rates by a quarter of a percentage. Here’s how it will likely impact buyers and sellers in the real estate market.
The biggest impact interest rates have on buyers is seen with the mortgage. Higher interest rates make mortgages a little less affordable. Even a quarter percent can become thousands of dollars of the life of a mortgage.
When interest rates remain low, buying a new home is more affordable because the mortgage is more affordable. Homebuyers may be able to afford a larger loan since they won’t be spending as much on the interest.
Even though mortgages may be a bit less affordable, rising interest rates may have a positive impact on buyers. When interest rates increase, home sales tend to fall. This means the market may start to sway a bit from a seller’s market back to a balanced market or even a buyer’s market.
Buyers with the ability to afford to buy a house may be met with less competition. In addition, if a seller is struggling to find a buyer, they may be more willing to negotiate.
Sellers benefits greatly from lower interest rates because lower rates make home buying more affordable. This allows for bidding wars to happen and helps to turn the market in favor of the seller.
As interest rates rise, buyers lose buying power (about 3% for every quarter-percent increase). This means there will be fewer buyers in the market looking at homes sellers have listed.
However, when interest rates first start to rise, it can cause a short term boost for sellers. Indecisive buyers will likely flood the market trying to buy a home before the rates go up again.
The long-term doesn’t provide the same boost. While rising interest rates in a seller’s market may not completely sway the market back towards buyers, it could cause sellers to see less interest in their home for sale.
Whether you’re looking to buy a home or sell a home, rising interest rates must be considered. It’s best to make your move before the rates go up again, as every quarter percent will impact the real estate market for both buyers and seller.
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