Time and time again, we have been hearing that the government is going to raise interest rates. This is rumored to take place as soon as early 2017. We hear about the huge impact this can have on the economy as a whole, but how will it affect the real estate market. Here are a few ways that increased interest rates can change the housing market.
Higher Mortgages rates
The most obvious effect will be that mortgage rates will rise. This means that it will soon cost consumers more to borrow money to buy a home. For the past few years, rates have been extremely low which enabled a lot of people to be able to afford a home. Once the rates rise, less people will be able to afford a home, meaning less buyers in the market.
Less New Construction
Mortgage rates are not the only rates that will rise. Interest rates for loans in general will increase. This includes loans that builders would use to finance the development of new homes. This also includes loans that investors would use to build homes, as well as renovate older, run down homes on the market. With money being more expensive to borrow, builders in investors will have a harder time making a profit with new construction homes.
Lower home prices
As stated earlier, when interest rates rise, there are not as many buyers on the market. Once the demand for homes decreases, home prices are soon to follow. Right now, there are more buyers looking for homes than there are homes for sale. This creates a lot of competition for homes, which causes the price of home to increase. If interest rates rise, the competition lowers, which will cause home prices to lower, or at least slow down the rate at which home prices have been increasing.
I do want to point out that increasing interest rates is not as bad as it may sound. Home prices are very affordable right now, so slowing down the increasing price rate of home will help to ensure that more people down the road will still be able to find affordable housing. Rising interest rates can be a good or a bad thing for you, depending on your situation. As always, if you have any questions, or are looking to buy or sell a home, feel free to contact me!