Are soaring interest rates hurting the United States Real Estate market? The answer depends on the specific market. In a market where demand is high and supply is limited, the higher interest rates may be fueling a surge in buyers. Alternatively, they may be deterring some potential sellers and buyers, who are wary of higher rates. But if you look for other reasons why higher rates may be a negative factor, you will see a number of other causes.
The Federal Reserve can slow the rise of real estate prices by raising interest rates. Although many people believe that interest rates hikes will lead to a decline in home prices, rising demand will offset rising interest rates. Moreover, the Federal Reserve doesn’t control interest rates directly, but it can influence the money supply, or how much money is available in the market. This is important to understand if you’re planning to sell your home in a high-interest rate environment.
Another cause of soaring interest rates is the heightened cost of mortgages. Rising rates can push some people out of the housing market, particularly first-time homebuyers. This means fewer competitive bids on homes. In 2019, the average US home spent 66 days on the market. In 2021, the average US home is likely to spend 43 days on the market. Bidding wars are common, with up to 70 percent of buyers experiencing them. For homes that are valued over $1 million, many all-cash offers are common.
Despite these factors, home prices continue to rise. This is partly due to the lack of homes for sale in the market. Moreover, overpriced homes do not sell very quickly, creating a seller’s market. The federal bank’s efforts to curb inflation through higher interest rates are also putting a squeeze on the housing market. But the rising rates can also boost the broader economy.
Higher interest rates can make home prices higher, so if prices continue to rise, the rents will also rise. Renting is not an attractive option in high inflation, so locking in mortgage payments can protect you from rising costs. A 4.5 percent interest rate is still a good deal compared to the eight percent plus annual inflation rate. The higher mortgage rates may even force home buyers to seek out rental properties to supplement their income.
Although it is true that soaring interest rates are limiting home sales, some experts say that a slowdown in home sales could be good for home buyers. A slowdown in home sales will also mean less bidding wars and fewer concessions on behalf of sellers. While this is a good thing for buyers, it is bad news for sellers. Most real estate experts are predicting that home prices will rise again in the next few years, according to the Mortgage Bankers Association.
Higher mortgage rates may be affecting the housing market. But they do not hurt the market as much as many economists think. The rising mortgage interest rates may be hindering the demand for housing, which will lead to a slower home appreciation. On the contrary, they can help the rental market, where fewer people can qualify for a mortgage. Increasing interest rates also slows down the job market, which will make home prices lower.