This week we are debuting "Big Questions in Real Estate" featuring all of the big questions about real estate provided by you!
This month's big question is:
"With interest rates on the rise, how will that affect someone looking to buy or sell this year?"
Based on the data, we can tell you that there will be big changes to the real estate market compared to recent years. We hope this helps answer your question and gives you some insight into what we will be seeing in the months to come.
With rising interest rates already promised by the federal government (it is rumored we will see quarterly increases in rates up to 3.75% until June) - buyers will see some unique changes to their purchasing plan. First, it's important to note that homes are going between 98.9 - 104.1% of list price already. So with purchase prices AND interest rates going up nationally, the fed is aware that this will slow and even drop out some buyers from the market. This is intentional and meant for buyers with low funds to go from spending to saving mode.
The problem with going from spending to saving mode is time. If a buyer chooses to get out of the market, they miss out on low interest rates (yes, they are going up but they are still very low historically), building equity in their home (rents aren't cheap!) and the benefits of very strong appreciation happening locally.
If interest rates rise to below 4%, buyers will see a shift in their purchasing power. But if interest rates rise above 4%, buyers will see a huge shift in purchasing power. So while the next few months will be very important for buyers to lock in their rate and save some dollars, it's really the next few years that will determine if a buyer can even afford a home at all.
So now we know that the best plan of action for buyers is to move forward in this market, but what about sellers?
Historically, as principal and interest rates rise to 30% of a buyer's monthly payment, fewer buyers will go to the market. With less demand for homes, the rate of appreciation starts to decline.
In the graph above, you see three green boxes. These are historical markers for when our market saw buyer's monthly payments rise to 30% (yellow), interest rates rise (red line), and when appreciation dropped (blue). We are heading into one of these "green box" times.
So if a seller wants to get the most buyers' eyes on their home with the greatest chance of selling between 98.9 - 104.1% (or more) of list price, this is the year to do it.
Bottom line: What we do know is the rates are going up (but still staying historically low), so buyers should stay in the game. The cost of waiting to buy is too great. We also know that as interest rates rise, the rate of appreciation of homes declines, so sellers will see all of the appreciation they've gained from the last few years when it is time to sell this year. All in all, the market from 2020-2021 is not sustainable anyway, so this will be the year of change and we would love to help you through it!
Market Statistics graciously provided by Megan Aller, First American Title Company
