What Raising Interest 
Rates Mean For Your Home Sale or Purchase

In June, the Federal Reserve increased interest rates three-quarters of a percentage point. That’s the largest increase since 1994 and has led to some uneasiness in the real estate market.

The Federal Reserve simply wants to combat increasing inflation to help the economy rebound from the coronavirus pandemic of 2020. Over the last two years, the housing market has been incredibly hot and led to low inventory, which made purchasing a home challenging.

So is now a good time to sell or buy a home? And are raising interest rates going to dramatically impact home prices this year? Here’s what you need to know about how interest rates impact home prices and whether now is the time for a real estate transaction.

How Interest Rates Impact Home Prices

Interest rates do not directly impact home prices. However, when interest rates go up, so do the monthly payments for homebuyers, which can shrink their budgets. And because of that, the demand for homes could decrease, which can decrease the price sellers can get for their homes.

But what many people don't realize is that the driving factor in the hot housing market right now is more about a supply and demand problem and less about the historically low-interest rates that we saw over the last few years.

As millions of millennials entered the home-buying stage of life, there simply weren't enough new homes being built or enough older generations moving out of homes and into other living arrangements. That has led to limited supply during a time of wildly increasing demand.

The increases in interest rates will likely have a mild impact on that demand. But that doesn’t mean that home values are going to begin depreciating anytime soon. What experts expect is that appreciation will start to slow instead of the the 17.5 percent nationwide increase in value we saw in 2021.

Does the Federal Reserve Set Mortgage Rates?

No, the Federal Reserve does not set mortgage rates. However, mortgage rates tend to follow 10-year Treasury yields. Changes in interest rates do change the tone for mortgage rates though.

Lenders and investors pay attention to the central bank and interpret the Federal Reserve's actions and how they will impact the market to set mortgage rates.

The Federal Reserve’s decision to increase interest rates in March of 2022 was the first increase since 2018. That increase was only a .25 percentage point increase. In May 2022, it increased interest rates another .5 percent, which was the largest increase in 22 years. June’s .75 percent increase was the largest in 28 years.

Experts say more increases are coming in 2022 and 2023. With more interest rate increases on the horizon, now is an ideal time for a real estate transaction if you’re considering buying or selling in the next two years.
How Do Interest Rates Affect Buyers? - The Robertson Team

How Do Interest Rates Affect Sellers?

Interest rate increases make it more challenging for homebuyers to afford a home. This can cause modest decreases in home values to stabilize the market. But based on trends, the 2022 interest rate increases will likely only slow home value appreciation instead of causing depreciation.

How Do Interest Rates Affect Buyers?

As interest rates increase, so do the monthly payments a homeowner would need to commit to, which can decrease their budget for a home purchase. Interest rates can also impact how much a lender allows you to borrow based on the percentage of your monthly income that your mortgage payment would consume.

Do Higher Interest Rates Cause Lower House Prices?

Increases in mortgage rates can drive down the asking price for a home. For the four-week period ending April 3, 12 percent of homes for sale dropped in price. The same timeframe in 2021 saw 9 percent of homes drop their asking price.

Real Estate Transactions During Market Changes

The home market is certainly entering a time of transition. But that doesn’t mean home values are decreasing or that you should avoid a real estate transaction due to mortgage rate increases.

Navigating real estate can be challenging and knowing the right time to buy or sell can impact your financial health and stability. Work with a real estate partner who understands these impacts and can help you make smart decisions that protect your long-term investment.

The Robertson Team understands how changes the Federal Reserve makes to interest rates impact your real estate transaction. Trust your transaction to our team of qualified experts. Contact us now to get started.

Ready to find your dream home?

Andrew Robertson - Charleston Broker

Andrew Robertson 

Real Estate Broker
(843) 513 7309

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