And why anyone who’s buying, selling, or investing in real estate should care.
There’s always so much talk about interest rates, buzz about what the fed is up to, and what effect a rate hike will have on the economy. But for those looking to invest in real estate or to buy or sell a home, keeping a keen eye on interest rates is key because as we all know, low interest rates translate to more affordable mortgages. But beyond mortgage rates (which have lingered between 3.4-5% since 2008), what affect do changes in interest rates have on property values? Let’s take a look.
Increase in mortgage prices = decrease in asking prices
As the economy has continued to improve, unemployment is down, which means more folks may be in a position to afford purchasing a home. But if interest rates go up, that also translates into more expensive mortgages which can have a direct effect on property values. It’s not uncommon for the rise in mortgage prices to cause many sellers to consider lowering their asking prices.
A rate hike = increase in cost to adjustable rate mortgage holders
But while the FED has been threatening a rate hike since mid 2015, the change is going to be slow and those who locked in mortgage rates when they were low are going to be unaffected. The real pain will be felt by anyone who has adjustable rates because the rise in rates may cause an increase in monthly mortgage payments.
High hopes
But while changes in interest rates can have an impact on the cost of a mortgage, there are many other factors involved that indicate the effects of a rate hike won’t necessarily be immediate. These include:
Selling a home can take several weeks or months
Appraisal values are based on comps that are often a few months old
Getting financing could be delayed or more difficult if the sale price is higher than the appraised value
Those looking to buy or sell may choose to wait if comps have sold for higher prices in the recent past
Whether you are looking to sell your home or buy a new one, it’s always a good idea to stay on top of what’s happening with interest rates. Most importantly, it’s a good idea to do your homework to see how the real estate market is performing in your area.
This is something that No Limit Real Estate can help you with. We work closely with each of our clients to ensure that whether you’re looking for an investment or are ready to buy or sell, it will be a profitable transaction. As experts in the area with extensive experience, we provide a specialized set of skills that are invaluable to our clients.