It’s starting to feel like there’s no end to rising interest rates.
The Federal Reserve has just implemented its 8th rate hike in the past year, going from 4.5% to 4.75%. With rising federal fund rates, high mortgage interest rates follow closely behind. This makes it harder to secure a mortgage, which drives away home buyers and cripples the real estate market.
If you’re a homeowner looking at all of this unfolding, you’re probably feeling pretty uneasy as well. In this post, we’re going to tell you exactly what rising interest rates mean to home buyers and home sellers.
At the end of the day, you should be able to buy or sell a house regardless of what the interest rate is. Keep reading and we’ll help you navigate this process as best we can.
Less Buying Power
The fallout of rising interest rates for those looking to buy is simple. With high mortgage interest rates, your debt-to-income (DTI) ratio goes up, which means that the bank won’t lend you as much and you’ll have less buying power.
What you’re pre-approved for depends on your down payment, as well as the monthly payment you can afford. If your monthly payments are higher, the loan you can afford goes down. The people that this affects the most are first-time home buyers that don’t have the capital from a previous home sale to use on a down payment.
Fewer Homes In Price Range
When your DTI ratio is higher, you qualify for a lower mortgage, so buyers are simply more restricted in the homes they can view in their price range. The rate hikes trickle down to the sellers as well, causing them to lower home prices, but this doesn’t happen right away.
When there’s not enough supply to meet demand, as is the case currently, it props up house prices for some time after rate hikes. If you’re a buyer, that could mean either settling for a home you don’t really want or being priced out of the market altogether.
Higher Mortgage Payments
Higher mortgage payments restrict your lifestyle in countless ways. What’s sad is how much monthly payments can change as a result of higher interest rates.
An easy way to look at this is to think about two buyers separated by a year – buyer A bought in February 2022 and buyer B bought in February 2023. Let’s say that both of them bought $400,000 homes on a 15-year fixed mortgage with 20% down.
The difference is in the interest rate, which in February 2022 was at 3.6%, but 5.9% in February 2023. Buyer A pays $2,300 per month and $54,000 of interest over the course of the mortgage. Buyer B pays $2680 per month and $122,400 of interest.
More People Keep Renting
At the end of the day, more people that want to buy are going to keep renting until mortgage rates settle. This is the end result of what high mortgage interest rates do to those buying a house, but it directly impacts those trying to sell as well.
Fewer Capable Buyers
Many cities across the country are going through a real estate market boom right now, with home prices rising considerably. As we mentioned above, however, this restricts buying power, especially with first-time buyers who make up over a quarter of all buyers.
With more buyers holding off until the market cools down, your home may be left on the market for a longer time. This is exactly what you don’t want to happen as a seller. The longer your home stays on the market, the more difficult it becomes to sell – it’s a vicious cycle
When this starts to happen, the importance of cash investors really becomes clear. Selling a house for cash is a simple process with a highly qualified buyer, no real estate agent fees, and it’s all done at your convenience. If you can’t wait for the market to sell your home, this is the best possible option.
Harder Time Finding a New Home
The other thing you need to think about when you’re selling your home in this real estate market is your ability to find a new home once you’ve sold. It’s important to do a bit of market research before you list your home to find out whether or not you’re going to be priced out of a market that you’re selling in.
Lowering Asking Price
We mentioned above that the effects of interest rate hikes take time to trickle down to the seller, but trickle they do. If your home is sitting on the market for too long, you’re going to start feeling pressured to lower your asking price.
Once you start lowering the price, there’s no telling where it could end. If you’re looking to buy a new home after you sell, lowering your selling price on this home will put you in an even trickier position when getting a new mortgage.
Affects Homeowners Too
The impact that high mortgage interest rates have on homeowners who aren’t looking to sell shouldn’t be overlooked either. Unless you’ve got a fixed mortgage, your monthly mortgage payments are susceptible to these changes also.
If you’re used to paying a certain amount per month and suddenly you’re paying hundreds of dollars more, it’s easy to get overwhelmed. In these scenarios, you may be forced to remortgage your home. In some cases, it might be better to sell the home instead.
Importance of Cash Buyers with High Mortgage Interest Rates
As you can see, high mortgage interest rates affect everyone in the real estate market. It’s in everyone’s best interest for mortgage rates to stay down. Unfortunately, it’s not so simple and we all have to deal with the consequences.
If you’re a home seller or a homeowner being forced to sell under these conditions, cash investors are your best friend. At ibuyhomes.com, we’re America’s fastest cash home buyer, helping you make the most of the tricky situation of selling your home in this market.
To get started, just visit our site and fill out our secure online form. We’ll get back to you with an offer and you’ll get to pick a closing date that’s most convenient for you.
There are no realtor fees, no dealing with banks, and you don’t have to worry about the condition of the home. Contact us today to get the ball rolling.