Explaining the impact that rising interest rates will have on home prices.
With the recent substantial increase in mortgage interest rates, many homeowners have been asking, “Will this finally cause home prices to drop?” The answer isn’t cut and dry. In a market where rates are predicted to rise even further this year, buyer affordability could take a serious hit. To give you a better idea of whether your home is expected to lose value in the coming months, I’m going to address four key points that explain what’s happening to buyers in the real estate market and what you can expect in the future if you’re thinking about selling:
1. Starter homes could cost more. A higher interest rate means a more expensive loan payment, and that might price out some buyers who could just barely qualify before. However, this can also cause lower-cost houses to go up in price since there’s more demand for them. If you’re trying to break into the market, homes might get more expensive for you, but higher-priced properties might have to lower their prices since the buyer pool has shrunk.
2. Increased rental rates. One often-overlooked factor in all of this is rental rates. As homeownership becomes more expensive and more out of reach for some buyers, rental demand is only going to increase, which means that rent prices will jump up as well.
“Continued low supply will keep property values up.”
3. Supply is still short. Although homes are more expensive, the demand for them is still high. The increased interest rates have also caused home sellers to stay in their homes longer, and our typical summer surge of inventory just isn’t happening right now. Low supply is good news for homeowners because it will keep your property values up.
4. We’re not headed for a crash. Some buyers and sellers are rushing to the market in fear of an impending crash. However, there aren’t many parallels between this market and that of 2008 when the last crash occurred. That crisis was the result of irresponsible lending practices. Since then, underwriting standards have tightened significantly. The current frenzied market has been brought on by basic supply and demand, and any kind of market crash is pretty unlikely.
Although rising rates are going to cause some buyers to leave the market entirely, all of the evidence we’ve seen points to home values continuing to appreciate as long as supply remains this low. This is good news for you if you’re thinking about selling.
If you have any questions about selling your home or are wondering about the real estate market in general, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.
