Homeowners are understandably concerned about the impact of the rising interest rates on their property values. To help alleviate this concern, we’re here to address four key points that will help you better understand the true situation and calm any fears.
1. Mortgages are getting more expensive. As interest rates increase, the cost of mortgages also goes up. Every percent increase in the interest rate corresponds to an approximate 10% increase in your payment. This means that when interest rates rise from 3% to 7%, many potential homebuyers may be priced out of the market, which can lead to a decrease in the buyer pool.
2. Rents are also getting more expensive. This is due to the increase in demand for rental properties caused by more people being priced out of the home-buying market. This can be seen in the increasing number of apartment buildings being built in many areas.
“Rising rates are not likely to cause a decrease in home values.”
3. There is a national shortage of homes. In some areas, there is still a shortage of homes, which means sellers still have the advantage. For instance, in the Madison, Middleton, and Fitchburg areas, there is less than half a month of active inventory available for purchase. While this decrease in affordability may be affecting the buyer pool, it is not putting enough downward pressure on home prices.
4. We’re not headed for a crash. The last market crash was caused by poor lending practices, which we have since remedied. In addition, the low supply and high demand will likely keep home values up. The only potential danger at this time is the government’s proposed changes to lending practices, such as a proposed fee for those who put 20% down on their loans.
While the rising interest rates are making mortgages and rents more expensive, they are not likely to cause a decrease in home values. The current market conditions favor sellers, and that is not expected to change any time soon. If you have questions or concerns about this topic, please do not hesitate to reach out to us for advice and guidance. You can call or email us anytime, and we would be happy to hear from you.