Mortgage interest rates have been rising over the past year, and this trend looks like it will continue into 2019. Experts like Dennis Crimmins in Alamogordo, New Mexico, say as of January 2022, the average interest rate for a 30-year fixed-rate mortgage was 4.46%, up from 3.95% at the start of 2021. For homebuyers and homeowners alike, this rise in rates is having an impact on housing market trends.
The Impact of Higher Interest Rates on Home Sales
Dennis Crimmins generally says home sales go down when interest rates go up. This is because would-be buyers have less purchasing power when rates increase. According to the National Association of Realtors, every 1% increase in interest rates decreases affordability by about 2%. So, for example, if rates were to increase from 4.5% to 5.5%, a typical buyer would be unable to afford nearly 10% less home.
In addition, higher interest rates make it more expensive to refinance an existing mortgage or to get a home equity loan—decreasing the incentive for some homeowners to sell their homes and buy new ones.
This means we can expect a decrease in both existing and new home sales in 2022 compared to 2021—particularly at the lower end of the market, where affordability is already an issue.
The Impact of Higher Interest Rates on New Construction Projects
The impact of rising interest rates on new construction projects is twofold. First, as we’ve already discussed, fewer people are buying homes when rates are high. This means there’s less demand for new homes, so builders will likely slow down construction projects until demand increases.
Second, the cost of borrowing money for new construction projects also goes up when interest rates rise. This makes it more expensive for developers to build much-needed new housing inventory—which further contributes to a slowdown in new construction projects.
How To Prepare For Rising Interest Rates
If you’re in the market for a new home, it’s essential to know how rising interest rates may impact your purchasing power and your ability to get a good deal on a property. Here are a few tips to help you prepare.
First, get pre-approved for a mortgage before you start shopping for homes. This will give you a better idea of how much home you can afford—and it will help you lock in a low-interest rate if rates rise while you’re still in the market.
Second, don’t be afraid to negotiate with sellers. In today’s market, there are more buyers than homes for sale. This gives you more bargaining power, so don’t be afraid to make a low offer on a home you’re interested in—you may just get it.
Finally, remember that interest rates are just one factor when buying a home. Don’t let the fear of rising rates keep you from finding the perfect property at the right price. With patience and perseverance, you’re sure to find the home of your dreams—regardless of what’s happening with interest rates.
What The Rise In Interest Rates Means For Homebuyers And The Housing Market In 2022
As interest rates continue to rise, we can expect to see a decrease in both existing and new home sales—particularly at the lower end of the market, where affordability is already an issue. In addition, borrowing money for new construction projects will become more expensive, leading to a slowdown in new construction projects.
Homebuyers must know how rising interest rates may impact their purchasing power and ability to get a good deal on a property.
When Will Interest Rates Peak?
Dennis Crimmins says no one can say for sure when interest rates will hit their peak—but we can make some educated guesses based on historical data and current market conditions.
Economists believe that interest rates will continue to rise slowly but steadily over the next few years as the economy recovers from the pandemic. However, there is a chance that rates could spike suddenly if inflation picks up unexpectedly or if the Fed decides to raise rates more quickly than anticipated.
For now, it’s safe to say that interest rates are on the rise—and they’re likely to stay there for the foreseeable future. When considering buying a home, you must act before rates increase.
Is This A Good Time To Sell My House?
If you’re considering selling your home, now may be the time to do it. As we’ve discussed, rising interest rates will likely lead to a decrease in existing and new home sales. This means that there will be less competition from other sellers—giving you a better chance of selling your home quickly and for a reasonable price.
Of course, Dennis Crimmins says there are no guarantees in the real estate market. If you’re not in a hurry to sell, you may want to wait until after the peak of the interest rate cycle to put your home on the market. But if you’re ready to sell now, you may find it easier than you think.
Rising interest rates are likely to hurt both the housing market and the economy as a whole. However, there are still ways to make the most of the situation if you’re thinking of buying or selling a home. If you’re in the market for a new home, be sure to get pre-approved for a mortgage, and don’t be afraid to negotiate with sellers. And if you’re thinking of selling your home, now may be the time to do it while there is less competition from other sellers.
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