Rising interest rates have been impacting buyers and sellers in different ways, influencing the real estate market. The Federal Reserve’s decision to raise interest rates is a step to counter inflation, but it also affects the housing market.
Buyers Affordability Decreasing
Higher interest rates imply higher borrowing costs for buyers. Homebuyers’ purchasing power decreases as the mortgage rates increase, leading to lower affordability. For instance, an increase in interest rates from 3% to 6% on a $400,000 mortgage could cost the homeowner an additional $250,000 of interest paid over the life of the loan. As a result, potential buyers may be hesitant to enter the market or may opt for smaller homes or lower-priced properties. A potential decrease in demand could cause home prices to stagnate or fall. Sellers are watching.
Interest Rates Impacting Sellers
Sellers, on the other hand, may feel the brunt of rising interest rates since higher mortgage rates can deter potential buyers. If a buyers’ purchasing power decreases due to higher interest rates, they may struggle to afford a seller’s asking price and is resulting in fewer buyers looking at homes. As a result, sellers may need to lower their prices or wait for more qualified buyers to enter the market, resulting in the home sitting on the market longer.
Additionally, sellers may hold on selling their home and move from a 3% loan to a 6% loan. Some sellers may decide to hold off on selling until market conditions improve, decreasing the supply on the market. This decrease in supply can lead to increased competition, resulting in a seller’s market, where buyers may end up paying more for properties than they would have before the increase in interest rates.
Renting vs Buying?
In a high-interest rate environment, some buyers may opt to rent instead of purchasing a property. This decision could further impact the real estate market as rental demand increases, leading to increased rental rates. While this may be advantageous for landlords, it could be challenging for renters who may struggle to make ends meet.
What Should Buyers and Sellers Do?
The impact of rising interest rates on the real estate market cannot be understated. However, buyers and sellers can take steps to mitigate the effects of these changes. For buyers, shopping around for the best interest rates and being flexible with their purchasing timeline could help them avoid higher borrowing costs. For sellers, you may have to considering adjusting the properties price to align with the current market conditions, work with a skilled real estate agent, or waiting for market conditions to improve could help them make informed decisions.
Rising interest rates continue to have a significant impact on the real estate market. While it is impossible to predict future changes, buyers and sellers can take measures to make informed decisions, allowing them to navigate the market’s fluctuations. Staying informed, seeking professional advice, and being patient are critical factors to successfully navigate the market, regardless of the interest rate environment.
