February 26

Real Estate and Rising Interest Rates – What You Need to Know

Inflation and rising interest rates can strongly impact a person's financial quality of life. Interest rates had risen when consumer pricing jumped by 2.6 percent last March. This continues to cause a sharp price increase in real estate. Nevertheless, an increase in pricing can both be good and bad.

There will always be an opportunity to be found with both rising and falling interest rates. It's wise to be cautious of rising interest rates, but these numbers affect people differently. The important thing about real estate and rising interest rates is to remember that interest rates are merely a number - the most important thing is still your monthly payments. 

As people still need places to live, the cost of housing will continue to increase. This means more competitive housing and rental markets, especially when property value appreciation occurs. Taking advantage of this opportunity means understanding the relationship between real estate and interest rates, calling for pre-approvals, recalculating payments, and reaching out to referral partners.

Rising interest rates don't always mean bad things. They can provide opportunities as long as you know how to take advantage of the market

Rising and Falling Interest Rates

Is Real Estate a Good Investment With Rising Interest Rates?

The rise and fall of interest rates have a tremendous impact on the value of income-producing real estate. This is because a profound influence on interest rates affects an individual's ability to purchase properties. Usually, this is done by increasing or decreasing the cost of the mortgage capital.

However, mortgage rates are only one factor in interest-related property value. Many people tend to make the wrong assumption that the mortgage rate is the only factor that influences real estate valuation. 

Interest rates affect how capital flows, supply and demand for capital, and investors' required rates of Return On Investment (ROI). Interest rates influence property prices through several factors.

Real estate, then, is a good investment with rising interest rates. The rise of mortgage rates can positively affect real estate. There can be an increased demand in the market for rental properties as fewer people manage to qualify for mortgages. With the rise in interest rates, housing and rent prices can be reduced, so more possible options can be taken advantage of.

Since interest rates are rising, there will also be an expected decrease in transactions in the real estate industry. This is due to tighter lending standards. More people will choose to rent a property until they can afford a mortgage. 

Even a 1% rise in interest rates for investors can turn into a windfall of profit when delving into the tight housing market.

Understanding Real Estate and Rising Interest Rates

Do Higher Interest Rates Mean Lower House Prices?

There isn't a proven strong relationship between low or high-interest rates and housing prices. There are only opportunities and chances where buyers can take advantage of both scenarios.

Mortgage rates are susceptible to increases when an economy is growing, its job market is healthy, and the average rate of income is rising. People can afford more and are willing to take out larger mortgages. However, external factors, such as inventory and cost of construction, affect housing prices.

Even if mortgage rates don't usually affect housing prices, they can indirectly impact them. Slow and steady rises in mortgage rates can translate into much weaker demand and less interactivity in the market.

There are some issues when it comes to rising interest rates. People who are approved for mortgage loans might have to pay more balance. It might be more difficult for them to cover costs. This creates hesitancy in the buying process due to the chances of a higher amount for mortgage loans.

It might not be the best strategy for homebuyers to wait for home prices to fall. High-interest rates can cancel out any savings made from decreasing home prices. It might be more beneficial to buy when interest rates are lower. In this case, homeowners and rental investors have a much higher advantage.


What Do Interest Rates Mean for Real Estate?

Some factors determine housing prices. This includes buyer demand and available housing. Higher demands with lower supplies translate to increased housing prices.

Mortgage rates play a big role as they are impactful to housing demands. Whenever the rates are lower, there tends to be more interest in home-buying. As the rates increase, interest in home-buying decreases. Let’s look at the factors that interest rates can influence.

1. Housing Affordability

Affordability is more than just the prices of homes. Inflation, income, and interest rates all affect the affordability of houses. When prices are increasing, it doesn't directly equate to less affordability. Sometimes, low-interest rates or higher incomes mean that the market will still have more buyers than usual.

Implications of Rising Cost of Housing

2. Interest Rates

Mortgage loans have an impact on the housing market. Loans can impact demand, pricing, and affordability and can fluctuate according to other factors, like the Federal Reserve policy, investor interest, and inflation.

3. Housing Inventory

Housing inventory means the supply of homes available on the market. Inventory is also a big external factor in the housing market. When supply is low, and demand is high, a seller's market goes up. This means higher pricing, bidding wars, and better advantages for sellers than buyers.  

On the other hand, buyers have the better advantage if the inventory and supply are high. When there are more available listings to purchase, a buyer's market occurs. The price growth slows down and stays stable, making the market less competitive.

The past few years have seen low supply in the market. Since the start of the COVID-19  pandemic, things have gotten worse for both buyers and sellers. Economic uncertainty plays a key role in this, as for-sale listings plummeted in 2020 and once reached the lowest they ever experienced.

Even as listings continue to recover, they remain relatively low. As vaccinations rise, things are looking better, which means supply constraints will soon loosen. Sellers will head back on the market, and more advantages will come.


Final Thoughts

Overall, real estate tends to have a cyclical system, similar to the economy. Some booms occur, but sometimes there are busts, such as a housing crash. There are times when these extreme conditions can get appalling. Despite that, a crisis is not something coming soon.

Working with knowledgeable agents is the key to thriving in situations like this. It makes sense to seek out help, especially from a trusted expert. A person who understands the market can help identify suitable properties even in a limited setting and challenging circumstances.

Nancy Braun, the founder of Showcase Realty, is the best person to trust when it comes to real estate troubles or queries. When looking for properties in Charlotte, NC, she's the best person to consult. Learn more about Nancy Braun at https://showcaserealty.net/about-us/.


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Charlotte Real Estate, Nancy Braun, showcase realty


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