Rising Interest Rates & Our Local Market

Rising Interest Rates & Our Local Market

The buzz around town and nationally, today is all about interest rates. The historical low interest rates over the past few years have “spoiled us” and pulled more buyers into the market than ever before. Now that the rates are slightly climbing, are more buyers waiting or taking a step back? Or are they rushing in hoping to get a good rate now? That’s a great question… with a frustrating answer… “it depends”.

As many of us are aware, the Federal Reserve approved the first interest rate hike in more than 3 years and experts anticipate 6 more throughout the year. Adjusting the interest rate to monitor or attempt to “curb inflation” has been a strategy employed by the Federal Reserve for many years. We have seen this cycle play out in years past, if you look at real estate trends and interest rates over the last 50 years. It is a cyclical pattern. 

For buyers getting into the market, connect with your lender to determine what you can afford and what you’re comfortable paying in terms of your monthly payment (principal + interest). For some buyers, an interest increase of 0.5 - 1.50% may drastically change their monthly payment and deter them from making a home purchase. For others, that shift will not affect their budget as much, and they’ll keep moving forward in finding their next home.

It’s important to remember, the majority of buyers purchasing a home with a 30-year fixed mortgage either sell before the full 30-year term, or they refinance during their ownership as rates will fluctuate during the 30-year term. In some cases an adjustable rate mortgage may be more attractive (often offering a lower initial interest rate). Talk to your lender about your financing options and explore all available resources. 

As a seller what does this mean? If you are considering a property sale to relocate, liquidate investment property, or to downsize / upsize, now is a good time to capitalize on the strong seller’s market. If your timing allows you to take advantage of the market, that’s great. Many sellers that are in a position to sell, are because of the extremely low inventory in our area and the high buyer demand. If you are not ready for a move, selling in the future will likely still be a seller’s market. Depending on the interest rates, it may not be as “strong / competitive” as the current market, but it will still be good.

No one has a crystal ball as to what the future real estate market holds; however, based on current conditions, the demand for homes is still extremely strong as rates are still enticing for new buyers getting into the market.

To summarize, as the interest rates rise, they tend to decrease affordability. This can reduce the number of buyers in the local marketplace and decrease the demand, inevitably lowering property prices and competition. Will this happen overnight? It is unlikely. Most shifts are gradual as the trend is dependent on the pace at which the interest rates shift.

Have a question or want to connect with a team member to talk more? Let’s get in touch. We are happy to help!