Interest rates are on the rise and Fed statements of late are clearly bracing us for more to come.
If you are considering buying real estate you are most likely asking yourself how these rising rates will affect housing prices. Here are the most common questions:
• If rates go up will prices fall?
• How will rising rates affect my purchasing power?
• Will rising interest rates mean more inventory?
Let’s tackle these one at a time.
Will prices fall? Surprisingly there is not a strong correlation between rising interest rates and falling real estate prices. Why? Because rising interest rates are generally tied to a strong economy which typically sees rising or at least stable real estate values.
How will rising rates affect my purchasing power? Good question. Small rises will have a small effect but when the rate rise inches up a point or two the impact can drop you out of certain markets. Consult your lender and start to understand the difference in your payment and purchasing power with a quarter point, half point and full point hike. This will allow you to better understand market movements and know how those effect your real estate search.
Will rising interest rates mean more inventory? Maybe. Keep in mind there is not necessarily a direct correlation between rising rates & real estate values however buyers react to market trends. Subtle rises in interest rates will often spur buyers to get a property under contract when future rises are on the horizon. One big jump in rates can momentarily stall the market while buyers regroup and rethink the commitment of buying or waiting.
Bottom line is interest rates are still historically low and all indicators point to future rate hikes. If you are considering buying and you are concerned about interest rates, now might be your best bet to get in the market.