Rising interest rates affect both buyers and sellers of real estate
By Tara M. Grimm
Since the start of the pandemic, the economy has been impacted in a tremendous way and this has led to interest rates rising and falling. Specifically, the real estate market has been significantly impacted by recent interest rate increases.
The cost of lending is rising as mortgage rates continue to climb, thus affecting the bottom lines of both homeowners and borrowers. Currently, mortgage rates are more than 2 percentage points higher than at the beginning of the year. This reflects the steepest quarterly climb of the year. It was also the steepest increase in 28 years for any first quarter analysis. What does this mean? I think it just means that it was the highest increase in a quarter in 28 years.
From a buyer’s perspective, higher interest rates weaken your bargaining power and you may end up purchasing a home in a lower price range due to qualifying for a lower loan amount. For example, the amount of a preapproval is based upon your down payment and your debt-to-income ratio. If your monthly payment is going to be higher due to a high interest rate, you will end up having a lower loan amount that you can afford. In a similar vein, you may have a hard time finding a home in your price range.
Typically, when rates rise, sellers do not increase the purchase prices, and may even decrease them if it is not bringing in offers. However, right now, inventory is low, and some buyers may be priced out of the market.
Lastly, and perhaps most obviously, higher interest rates mean that your monthly payment is going to be higher and you have less money for your regular household budget.
Now, what about from a seller’s perspective? If you are a seller, you are likely only taking offers from buyers who have been preapproved. You also will want to make certain that the preapproval is based on current interest rates. In addition, you will likely be anxious for buyers to lock in their rate as soon as possible. In addition, there may be fewer interested buyers because they were priced out of the current market. In turn, it will take longer to receive offers and ultimately, to sell your home.
Another consideration is that after selling your home, you may be looking to purchase a new home. Even if you made a large profit on the sale of your property, you could easily spend a lot more finding another home with a higher interest rate.
No matter if you are a buyer or a seller, raising interest rates are affecting everyone and rates are unlikely to drop anytime soon.
If you are looking to buy or sell a home, please contact the law firm of Gardi, Haught, Fischer & Bhosale Ltd. to review your matter by clicking on the free case evaluation button below.