Will increasing interest rates impact home prices? With interest rates rising, it is causing some to believe that a housing crash is inevitable. Is that truly the case?


In our latest episode of “Yay or Nay,” we take a look at how interest rates impact home prices. What you hear might surprise you.



How Do Interest Rates Impact Home Prices

The increase in interest rates starts a snowball effect that impacts the overall price of homes. When interest rates increase, unfortunately, it does mean that some individuals will exit the housing market because of the increase in monthly payments. Because of that, it’s reducing the demand. Additionally, we’re starting to see more homes come onto the market, increasing supply. So, we’re left with the basic principles of supply and demand. 


How are we seeing this impact the housing market? A few months back, a home that was listed for $500k was selling for $600k. We were seeing that nearly every home was selling for tens of thousands above asking. Now, with fewer buyers in the market and more inventory, there’s less of that competition so homes are not going for as much over asking. Now keep in mind that you will still see homes go for over asking, however you may see a home sell for $25k over asking as opposed to $100k. 


The main point is that home prices are not going down. We’re not seeing depreciation because interest rates have climbed. However, we are seeing that you’re not going to have as many bidding wars and you’re not going to see a home sell for that much over asking. 


Homeowners from Q1 of this year to Q1 of last year made on average about $60k in equity. Additionally, homes are anticipated to still appreciate by 10.8% through the end of this year. Next year, experts predict that we will see homes continue to appreciate by 3.2%. Even with higher rates and less buyer demand, homes are still going to increase in value. We’re also still seeing that homes are still appreciating. It’s not that we are seeing demand drop out completely in the housing market and that the market is crashing. The market is changing - and if you’re looking to buy, you’re going to find that you have more options available, can get better terms, and always have the option to refinance down the room. A home is still a great investment, don’t let the headlines in the news scare you away from thinking that. 


The best thing to do if you’re looking to buy is to stay within your means and talk to your lender so they can help you figure out a realistic budget that will account for some interest rate fluctuation. If you were pre-approved six weeks ago, you should have another conversation with your lender now that rates have changed to ensure that you’re still approved for your original amount, now that your monthly payments have likely changed. If you don’t, see what other programs are available! Options like a 5 or 10-year ARM are great alternatives at this point. 


Bottom Line

Rising interest rates do impact home prices in the sense that you’re more likely to be able to get under contract on a home for less than you may have been able to a few months ago. More than likely, you’ll also be able to include better terms that benefit you as the buyer. However, it’s important to know that rising interest rates won’t cause the value of homes to decrease. Experts are forecasting appreciation through 2026. So, if you’re looking to buy today, keep this in mind and also remember that you can always refinance down the line should rates drop. There are also a variety of programs available out there that can help you secure a lower interest rate. Have those conversations with your lender today and work with your agent to see how they can help you get into your dream home this summer.