How are Rising Interest Rates Impacting the Real Estate Market?
What I am seeing in the real estate market right now is that people are starting to slow down on their buying and their mortgage applications. This is largely due to the rising interest rates, and it will largely be interest rates that determine exactly what happens in the real estate market in the next few months.
As we see higher interest rates buyers will start getting squeezed. Whether, from a mortgage qualification standpoint or from the price they can afford, buyers will have significantly less buying power. For every 1% increase in interest rate, purchasing power will be decreased by around 9-10%. If inflation continues to rise, the real estate market is going to have to come down to where the buyers are.
Why Cheaper Real Estate Prices Can Potentially Cost You More
If you’re a home buyer, let's say you were able to purchase a home next year for 5% lower than you can buy right now, but you have to pay a 1% higher interest rate, well in effect you will actually pay in total five percent more for the house if would have purchased the house at a lower interest rate but higher price a year ago.
Trying to time the market and hit lower prices isn’t necessarily a good idea especially if you’re planning to get a mortgage. If interest rates go up by 2%, housing prices have to come down by 19-20% for you to be getting the same price. In the same sense, if mortgage rates come down, buyer demand will increase dramatically and housing prices will again rise.
Do Your Due Diligence
As a buyer, you really have to look at the total numbers and not just the short term prices, instead of just saying I’m going to wait a year to see if I can get a better deal, try to figure out how much you think housing prices are going to come down, and how much you think interest rates are going to go up. What you will see is that the interest rate quite often will have a bigger impact on the price of the house, than what the actual reduction in price will be.