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What Happens to Housing Prices When Interest Rates Increase?

Over the past two years, home prices have been on the rise. Buyers have been paying prices higher than the home’s value just to beat out the competition. This has caused prices to skyrocket.

But now there’s a compounding issue – interest rates are rising too. So, what’s happening to housing prices, and will buyers eventually be priced out of the market?

What’s Predicted for Home Prices?

Experts don’t believe home prices will drop drastically just because interest rates increased. There are too many factors involved in why housing prices increased so much in the first place, starting with the excessive demand.

That being said, certain factors will affect housing prices, such as the following.

Some Borrowers Won’t be Able to Afford a Home

The rates might get high enough to price many people out of buying a home. Borrowers with a tight budget might find that they can no longer afford a mortgage payment or at least one of the same size they were considering before rates increased.

The decreased demand may help housing prices decrease, which is the good news. Prices increased so dramatically over the last couple of years because of the low supply and high demand. As roles reverse, we might slowly see a less drastic increase in housing prices.

Less Competition

In 2021, most buyers had at least 5 other buyers they had to bid against to win a home. Sellers were in the perfect position because they could accept the highest offer. Many buyers were even willing to offer appraisal contingency waivers. This meant they would pay the difference if the appraised value came in lower than their offer.

With rising interest rates, there’s less demand, which means a lower chance of prices increasing. While you’ll still pay higher prices because asking prices are high, you might not have to pay more than a home is worth.

What About Rental Prices?

If you’re thinking about investing in a home right now, it could be a great time to jump in. With rising housing prices (or at least elevated prices), rental prices are increasing too. This means investors can make more money monthly with higher rent prices. You also earn the capital gains the home earns while you own it.

Final Thoughts

Housing prices won’t be decreasing any time soon. If anything, the rate that they increase will slow, but you’ll still see higher prices than we’re used to.

If you’re thinking about investing in a home or buying a primary residence, let the professionals at Save Financial help you find the perfect mortgage. We offer a large selection of financing options including loans for ‘non-qualified borrowers’ such as the self-employed or a borrower living off their assets.

We look at each application with common sense, versus an algorithm. We determine if you can afford the loan based on what we see and not what a computer thinks. Contact us today to learn more about how we can help you buy the home of your dreams today!

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