If it seems like everything is getting more expensive these days, it’s because they are. Inflation is at a 40-year high, and if you’ve been on the hunt for a new home, you’ve probably noticed that the interest rates on mortgage loans are steadily creeping up, too.
What do rising interest rates mean for your search for a new home, though? Read on to learn how interest rates shape the housing market.
Rising Interest Rates Equal Less Purchasing Power
The first thing you need to know about rising interest rates is that they have a negative impact on your buying power.
Your monthly mortgage payment is made up of a number of things, including the payment on the principal, insurance, and property tax. A portion of your payment goes toward the interest on your mortgage. The higher your interest rate, the higher your interest payment.
This means that if you can only afford to pay $2,000 a month for your house payment, you’ll have to buy a less expensive house to stay under budget. As a rule of thumb, expect your purchase power to decrease by $10,000 for every 1% increase in interest. For that reason, it’s better to act fast to avoid any further budget squeezes by rising interest rates.
Rising Interest Rates Could Drive Down House Prices
It might sound counterintuitive, but rising interest rates have a tendency to lower housing prices. With fewer people with the buying power to purchase their homes, sellers have to come down on their pricing to get them off the market.
That said, in today’s real estate market, things are unlikely to change too much. Available housing isn’t keeping pace with the demand for it. This is partially due to Millennials reaching peak home-buying years, keeping house prices high.
Expect a Cooler Housing Market
You’ve probably heard a lot about the red hot housing market in the past couple of years. One of the biggest drivers of that market was incredibly low interest rates in combination with the exodus from city centers to more affordable suburban areas. People who couldn’t afford a home before suddenly could, thanks to lower interest rates.
It also drove up housing prices and set the stage for bidding wars. As interest rates tick up, the dynamic is going to change. If you’re looking for the perfect home for your family, then it’s critical that you talk to your realtor about making strategic moves in the home buying process.
Are You Searching for a Home in Utah?
Rising interest rates have a tremendous impact on the housing market. You’ll have less purchase power, but you’ll also face less competition when it comes to making an offer on your dream home. With interest rates on the rise, it’s best to act sooner rather than later to ensure that you get the best rate possible.
Do you need help finding the perfect home for you and your family in the Utah Valley? The PorchLight Realty team is here to help you find a home that checks off all of the boxes on your wishlist. Contact us today to get started!