Ahh, rising interest rates. That was the song played on repeat during 2023. Here was our take on the situation in the second half of 2022.
Since 2020, the housing market has seen a lot of changes that have caused buyers and sellers to adjust their strategies continually. This has kept real estate agents and brokerages on their toes, prioritizing solutions to arrange the best deals for their clients. Currently, rising interest rates are on top of mind. The good news is that Marketplace Homes is ready to help clients get the best deals even in a market that looks tougher for everyone.
The Fed’s Response to Inflation
In September 2022, the Federal Reserve implemented yet another interest rate hike of 0.75% to combat inflation. This now makes the average mortgage loan interest rate around 6%. What does this mean for the housing market, especially since the Fed has indicated that more interest rate hikes are possible during their next two meetings in 2022?
The Big Picture
Short-term fluctuations can look big when you compare them to the recent past. However, rising interest rates are just another part of the real estate market cycle. We are still recovering from an unprecedented housing boom when buyers took advantage of ultra-low interest rates. Over time, inventories rise and fall – and so do interest rates.
Despite what the media is saying, we’re still getting a deal. Looking at a chart of historic mortgage rates, you will notice that our current average rate of 6% is still lower than what people were paying in the 1980s, 1990s, and even early 2000s. In the mid-90s, it was common to see 9% as the average interest rate.
How Higher Interest Rates Affect Sellers & Builders
Here’s good news for sellers: historical statistics indicate that despite 18% interest rates in the eighties or 9% in the 90s and 00s, people were still buying homes. People were also snatching up homes during the housing “bubble” of 2008 and after the crash.
Expect fewer offers.
Increased rates make it harder for people to afford a mortgage. This results in an overall decrease in offers. However, buyers less sensitive to increased rates and all-cash buyers are still snatching up houses in lucrative markets.
- Tip: If you’re having trouble selling your house, connect with Marketplace Homes. We can buy your house or sell it to one of our investor partners.
Expect choosier buyers.
As opposed to early 2022 when standard sales included waived inspections and sellers not paying closing costs, buyers can be choosier. You may see more contract terms in the buyer’s favor, such as home inspection contingencies that aren’t void-only or requests for repairs or closing cost assistance.
To get the best deal, sellers should listen to their real estate agent’s advice about how to market their property and what terms to push for during contract negotiations.
How Higher Interest Rates Affect Buyers
Though inventory is increasing, and prices are slowly decreasing, the rising interest rates take away the usual perks of a true buyer’s market. Sellers still have the upper hand, so buyers should be prepared to bring their very best offer. Here are the ways interest rates will affect buyers right now:
Cash is still king.
The more cash they bring to the table will help buyers in the long run. Eliminating financing or home sale contingencies will create the most competitive offers that sellers seek in this market.
- Tip: Our special incentive programs like Sell & Stay make it easy to free equity and eliminate a home sale contingency in one fell swoop.
Buyers must leverage loans.
This is not a great time to take out a large loan because the monthly mortgage is going to cost you more in interest. However, if you can cash out on equity and pay down a loan significantly, you can get the house of your dreams with a reasonable monthly payment.
Some are playing the long game.
Since the market cycles, today’s buyers may plan to hold on to their new home and potentially refinance when conditions improve.
Buyers have more leverage than in early 2022.
Since inventory has increased to a 3.2 month supply, there is less competition compared to January 2022 when homes were at a 1.6-month supply. This makes it possible to make an offer with a financing contingency, though a cash offer is still preferable.
The bottom line is though home prices and interest rates fluctuate, real estate is more resilient than other industries, even during difficult economic Times. Buyers can still find a great home when they work with an experienced real estate agent.
We’re Here During Rising Interest Rates – and Beyond
As you can see, rising interest rates are just part of the real estate market cycle. Things go up, things go down, and we must weather each storm with excellent strategies and creative solutions.
Marketplace Homes is positioned to offer some of the best solutions due to our robust investor and builder connections. Whether you are a seller who needs to make top dollar, a buyer who needs to relocate, or an investor who needs to find the best homes in emerging markets, we are here to assist you. Contact us to learn more about our real estate solutions that will have your goals on top of mind.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.