You have probably heard a lot of discussion regarding inflation in the news during the past year. Inflation takes place when the price of goods and services increases broadly across the entire economy. The Federal Reserve tries to keep prices in check by raising and lowering interest rates, and the Federal Reserve generally raises interest rates during times of high inflation. The goal is to reduce the amount of cash in the economy to get inflation under control by encouraging people to stop spending money.
Unfortunately, when the Federal Reserve raises interest rates, it has a lot of side effects, and its effects can be felt in the real estate market. As the Federal Reserve continues to raise interest rates, how does it impact the real estate market?
The Impact of Rising Interest Rates on Home Buyers
When the Federal Reserve raises the central interest rate, It generally leads to higher interest rates across the board. While this might mean that you are earning a higher interest rate on your savings account, it also means that mortgage rates go up as well. This can have a significant impact on anyone looking for a home.
Some of the impact that home buyers might feel include:
- A Lower Loan Amount: If you are interested in taking out a loan to purchase property, you might notice that the maximum loan you qualify for has gone down significantly. That is because your monthly payment is going to be higher because you will have a higher interest rate on your mortgage, which means that you will qualify for less capital or principal on your home loan.
- Your Mortgage Payment Is Higher: When interest rates go up, the mortgage payment for a house at the same price will go up as well. This is because your mortgage loan will have a higher interest rate, causing your monthly payment to rise. While you can always refinance when interest rates go down again, your initial payments will probably be larger.
- Difficulty Finding a House in Your Price Range: You may also have a hard time finding a house in your price range. While it is true that sellers generally lower their prices because there aren’t as many people out there who can afford a house, this might not happen right away. Furthermore, many sellers will be reluctant to sell their houses because they may not want to take out a mortgage for their next home at a higher interest rate, meaning that inventory might be low.
These are a few of the biggest ways that home buyers might be impacted by rising interest rates, but they are not the only ones who will feel the effects.
The Impact of Rising Interest Rates on Home Sellers
If you want to sell your house during a time when interest rates are high, there are several impacts you might notice. They include:
- Houses Are On the Market Longer: You might notice that your house is on the market for a much longer period of time than normal. Because there aren’t as many people out there who can afford a house, you may not have as many offers on your home. We are already seeing this play out, as houses are staying on the market for significantly longer when compared to a year ago.
- You May Have To Make Some Concessions: If you really want to sell your house, you may need to make a few concessions. During the past few years, it was not unusual for houses to sell for significantly more than they were listed for, but when not as many people are available to buy your house, you may have to make some concessions.
- You Have a Hard Time Finding a New Home: If you want to sell your house, you may also need to find a new one, but you may have a difficult time doing so. You might realize that your new mortgage will cost you significantly more money, so you may end up thinking twice before you sell your house.
Each real estate market is a bit different, but these are a few of the broad trends that tend to play out for sellers when interest rates are higher.
What Can You Do To Prepare?
Many people are speculating about how long interest rates will remain this high, but the reality is that nobody knows when the Federal Reserve is going to prepare to lower interest rates again. Therefore, you need to repair yourself now to ride out the storm.
Some of the ways you can mitigate the impacts of higher interest rates include:
- Put More Money Down: If you need to take out a mortgage, you want to pay as little interest as possible. One of the best ways to do so is to put more money down, meaning that you do not need to take out as large of a loan.
- Clean Up Your Credit Score: While it is true that interest rates are higher, it is also true that there are steps you can take to become a more appealing borrower. If you can pay down some of your existing debt, you may be able to increase your credit score, which can help you qualify for a lower interest rate.
- Explore All Loan Options: Remember that there are non-traditional loan options as well. You may want to explore some of these unconventional packages to see if there is a way for you to save money.
If you are interested in purchasing real estate, our team can help you.
Call Hard Money Lenders AZ for Help Financing Your Next Real Estate Purchase
It can be difficult to navigate a market that has higher interest rates, but at Hard Money Lenders AZ, our team has experience working under a variety of market conditions, and we can use our experience to help you as well. Give us a call today to learn more about our loan options.
