Effects of Rising Interest Rates on Real Estate

An improved economy, strong job growth, wage growth and rising home values have contributed to a rising interest rate environment. This means home loans, car loans, credit cards and anything else in the U.S. that is has an interest rate attached to it will be affected. As an experienced real estate team with over 70+ years of combined experience, we’d like to discuss what impact rising interest rates have on St. Louis and St. Charles County, Missouri real estate.

Rising Interest Rate Effects on Homebuyers

For most homebuyers rising interest rates won’t change their decision to purchase a home. However it may cause a sense of urgency to find a home before rates rise again. It can also affect the amount of home homebuyers can purchase within a set budget.

Realtor.com® offers this example:
On a $300,000 house with a 30-year fixed-rate mortgage and 20 percent down payment, the difference between a 4 percent and 5 percent mortgage rate is $142 a month.   

Homebuyers concerned with rising rates may want to lock in a rate with a lender. This will guarantee the current rate for a set period of time. Also, homebuyers can help keep their personal rates lower by attending to their credit score. Be sure to pay bills on time and not overburden yourself with additional debt when considering buying a home.

Buyers can also try different mortgage products like new 40-year loans instead of traditional 30-year loans. While it allows you to buy more home, the longer term means you will be paying more for the home over the length of the mortgage. So it would be wise to refinance with a shorter-term mortgage when able to do so.

Rising Interest Rate Effects on Home Sellers

For home sellers, rising interest rates means the pool of buyers for your home could shrink. For example, if all other economic factors remain the same, an interest rate rise of 1 percent could decrease the purchasing power of homebuyers by up to 11 percent. However the current demand for homes by homebuyers in a real estate environment that is low on inventory means that buyers are finding creative ways to procure the home they want to buy despite interest rates.

Rising Interest Rate Effects on Homeowners

If you’re a homeowner who has been thinking of refinancing, you still have time. Interest rates are expected to climb gradually, so refinance or borrow sooner to avoid higher rates later on down the road. Also, borrowing costs are still relatively low. So it is a good time to get out of variable-rate debt and lock in fixed rates to insulate from further rate increases.

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Ultimately, consumers don’t appear to be flinching much at rising interest rates. The U.S. economy has so much going for it that higher incomes and job availability could cover rising rates. Regardless of your current situation, if you are considering buying or selling a home in the current rising rate environment, speak with a member of The Boehmer Team. We have helped many homebuyers and sellers in all types of situations. Also, we can recommend mortgage loan experts in the St. Louis area that will help you get the best rate available for your needs.