After years of historically low mortgage rates and federal interest rates, the cost to borrow money is on the rise. Mid-June of 2022 marks the third time in as many meetings that the Federal Reserve increased the interest rate it charges businesses to borrow money.
This most recent rate hike was the most significant yet. The Federal Reserve increased the interest rate it assesses by 0.75%. The goal of this aggressive increase is to cool off the real estate market, as recent surges in prices are a contributing factor to double-digit inflation currently affecting the economy.
What can real estate professionals expect this interest rate hike to mean for their business?
Sellers may want to wait to list
One of the reasons property values have increased so much in recent years is that there simply haven’t been enough properties for sale for all of the prospective buyers. Sellers, worried about not being able to buy a new home for themselves, might wait until list their properties even when the price they would receive for the sale has surged.
Rising interest rates are likely to keep many prospective sellers from listing their properties. They will consider the higher cost to finance a new home purchase and decide that it is not the time for them to complete a real estate transaction.
The competition among buyers may decline
In the last few years, sellers have been able to list their properties for a premium price and expect the property to sell quite quickly. A significant number of sellers benefited from bidding wars where multiple buyers tried to offer the best terms to purchase their house.
Although low supply may mean that there are still buyers competing for properties, fewer buyers are likely to wade into the real estate market with rising rates significantly increasing what they will pay for a home and reducing how much property they can purchase.
Whether you want to help a client who needs to list their home soon because they must move for work or support those trying to buy their first home before their baby comes, having an understanding of where the market is currently at and where it will likely be in the next year will help you provide the best guidance possible.
Keeping up-to-date on real estate trends and changing real estate laws will help professionals better support their clients.