How will rising interest rates affect the market and you?
We've all heard the big stories about interest rates rising and the Federal Reserve planning more hikes in the future, but it isn't always clear what the impact will be. Below is a quick guide to how changes in interest rates impact buyers, sellers, equity, home prices, and more!
What does the interest rate mean and how is it changing?
The Federal Reserve establishes the national base interest rate for funding like mortgage loans. With historic lows in interest rates since the start of the pandemic, we are now seeing a shift as interest rates return to previous levels, if not higher.
In the first weeks of 2022, federal interest rates rose to the highest point they've been in almost two years. The Federal Reserve and most market watchers have anticipated this increase, and they see more increases in the year to come. So, why should this matter to you?
For buyers getting a pre-approval for a mortgage loan, higher interest rates increase the amount of the monthly mortgage payment. Even a small increase, like the change from 3.22% to 3.45% average on 30-year fixed rate mortgages can mean hundreds of dollars per month in payment increases. This means that if you are looking to buy a home sometime soon, locking in the lower interest rates now beats waiting for the higher ones later this year.
Projections show that as we move forward in 2022, rates will likely go up several more points. That means a big change in the purchasing power of anyone looking for a home. For prospective sellers, changes in interest rates may translate to less competitive bidding wars for your listing or even trouble finding buyers, depending on your price point. If you have been waiting to buy or sell to 'see where the market moves,' now is the time to act!
If the rates are higher, shouldn't I wait until they go down again?
There is no decrease in sight for interest rates in the near future. Still, it's not all bad news.
Even though interest rates have increased recently and are set to increase a few more times in coming months, they are still low in a historical view. In the last 50 years, mortgage loan interest rates have ranged from 12.7% to 4.1% average, consistently falling since the 1980s, so the current average rate of 3.45% is actually still quite good! If you were to purchase a home now and lock in a 3 to 4% mortgage loan interest rate - which would be the rate for the life of your loan - you would be protecting yourself from market fluctuations later and ensuring a rate that looks great compared to preceding decades.
In addition to the opportunity to take advantage of rates now (before they go up even more), we are also seeing increased inventory in the market right now, which means that the bidding wars and historic sellers' market of 2020 and 2021 are cooling down. That may sound like trouble, but it's actually a great thing. This means that if you are out shopping for a home in the current market, you have more opportunities to see a property you like, make an offer with reasonable terms, and have that offer accepted. It isn't a guarantee, but it may make homebuying a little less scary than it seemed a year ago!
At the end of the day, what does this all have to do with me?
Basically, if you are looking at buying or selling real estate sometime soon, but have been holding off to see if there will be a crash or housing prices or interest rates will fall or shift, you should stop waiting. Acting now while interest rates are still low means more opportunities for buyers, and that's good for sellers, too!
Real estate will always have some surprises, and your experience may not be 'average' at all, but now is looking like the best time for quite a while to get your real estate purchases and sales made. In as little as a few months, interest rates will likely go up again, leaving some buyers priced out of the market. Don't miss this window of opportunity to take advantage of historic low rates that came with the unprecedented events of the last two years; we won't get this chance again!