Will Rising Rates Cause Prices To Drop?

Here’s the impact that rising interest rates will have on home prices.

If you’re a homeowner or a prospective buyer, you might be wondering if the soaring interest rates will affect the housing market. I’ll shed light on this issue and its potential impact on home prices:

1. Mortgages are becoming costlier. One of the key factors to consider is the increasing cost of mortgages. As interest rates rise, some potential buyers find themselves priced out of the market. Sadly, this also drives up rental costs, pushing more people towards homeownership. Keep reading to understand how this could play out.

2. Housing shortages persist. A significant factor keeping home prices high is the ongoing shortage of available homes, both nationally and locally. Low supply and high demand are driving up prices. Until there’s a shift in the number of homes available, we can expect prices to remain elevated.

3. No market crash on the horizon. It’s essential to clarify that current market conditions aren’t indicative of an impending market crash. The surge in prices results from low supply and high demand, rather than problematic lending practices.

Now, let’s consider the potential scenario:

Suppose you’re eyeing a $250,000 home with an 8.25% interest rate, leading to a monthly payment of $1,780. If interest rates eventually drop to 6.25%, more buyers may enter the market, triggering bidding wars and potentially pushing home prices up by as much as 20%. With the lower interest rate, your monthly payment would decrease to $1,750. However, the catch is that by waiting, you could lose $50,000 in home equity.

But here’s an interesting twist: If you purchase the same house now and later refinance at 6.25%, your monthly payment would drop to $1,462. That’s over $300 in savings each month. Furthermore, you’d gain $50,000 in equity, making your home worth $300,000.

The housing market’s future is uncertain, but waiting for lower interest rates may not be the best strategy. While lower rates might lead to more affordable monthly payments, they could also result in higher home prices. Ultimately, it’s essential to weigh the pros and cons carefully and consider the long-term implications for your financial goals.

If you’re concerned about how the current market conditions affect your home buying or selling decisions, reach out by phone or email, and we can work together on a plan to navigate this dynamic market.