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What Do Higher Interest Rates Mean For Homebuyers and Sellers?

How Do Changes in Interest Rates Affect Home Buyers and Sellers?

On June 15, 2022, The Federal Reserve raised short-term interest rates by 0.75%. The federal interest rate now ranges from 1.5% to 1.75%. This rate represents the cost banks pay to borrow money from each other. If banks pay more to borrow money, they must charge more to consumers. That generally means higher interest rates for the rest of us looking to borrow money for a mortgage, credit card, or any other lending. It may also mean that your current rates may increase, causing higher minimum payments on credit cards and home equity loans.

With higher rates, everyone has less money in their pockets and less borrowing power. Bloomberg reported the following information as of today, 6/20/2022, at 12pm, comparing today's rates to 1 month ago.

In December of 2020, interest rates were at historical lows. A buyer could buy a home with a rate as low as 2.68%, but rates have been steadily increasing. A home buyer financing a purchase of $250,000 with interest and principal payment at 2.68% is $970.06. That amount at 5.99% today will cost $1,301.48, a hefty increase for buyers! If those same buyers have credit card balances or other loans subject to these adjusting rates, they will see the cost rise across all their lending. Couple raising rates with higher food and gas prices, buyers have significantly less money to spend.

What can you do as a buyer? Interest rates are expected to continue to rise. Your best defense is a good offense. If you plan to buy soon, APPLY NOW AND LOCK IN THE RATE! Depending on your lender, you can pay a few hundred dollars to guarantee today's rate for 15-45 days.

For sellers, this means that you should recognize that prices will adjust. While we are still in a solid sellers' market, buyers have less borrowing power and less cash. This may mean that you should discuss your pricing strategy with your real estate agent. You may also get creative and offer to pay closing costs for buyers or make other concessions. Lastly, keep in mind that interest rates are expected to continue to rise. With every increase, the lending power of buyers decreases, and the market will likely continue to slow. Right now, might be the best time to sell!

All and all, the market in Berkshire County is still strong. However, we are beginning to see shifts. The Berkshire Board of Realtors reported a 3% decline in overall sales in the first quarter of 2022 compared to the same period last year. So consult with your agent and discuss your next steps.

Tara Barboza, CPA

360Berkshire Realty Group

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