How Do Interest Rates Affect Our Real Estate Market?

    Interest rates can have a huge effect on the real estate market. Here are a few examples.

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    Over the past 10 years, interest rates have been fairly low. Back in the 70s and 80s, people were paying crazy high interest rates. I actually looked back at some data and found that in the early 1980s, interest rates were as high as 19%.

    When I bought my first house in 2006, rates were right around 6%. They’ve since dropped, and have hovered right around the 3% to 4% rate over the last few years. Many people are looking to the Federal Reserve to raise their rate, which will raise mortgage interest rates. It has been slow to happen, but they are finally starting to creep up a bit. Last year at this time, we were seeing rates around 4% for a 30-year mortgage. Right now, we’re up near 4.5%.

     

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     This affects buyers as well as sellers.

    How does this affect the market? Well, as rates rise, homebuyers won’t be able to afford as much as they used to. Just a 0.5% increase on a $200,000 house affects a monthly mortgage payment by $60. If rates rose to 5%, that same buyer would no longer be able to afford a $200,000 house. They would only be able to afford a $178,000 house.

    Not only does this affect buyers, but it affects seller as well. As rates rise, fewer people can afford higher-end homes. If people can’t buy what they want, it can turn a hot seller’s market into more of a buyer’s market.

    If you have any questions about interest rates, don’t hesitate to reach out and give us a call or send us an email. We look forward to hearing from you soon.

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