The Impact of Rising Interest Rates

The Federal Reserve approved an increase in interest rates recently in an attempt to subdue inflation, and plans to implement more interest increases in the coming months to help maintain the growth of the economy. Many people are concerned about how these interest hikes will influence the housing market and subsequent housing prices. If you are interested in buying or selling a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions regarding the latest real estate trends, Foundation Mortgage can help answer your questions. Read on to learn more about how the recent increase in interest rates may influence the housing market.

How Will Rising Interest Rates Impact Home Buyers and Sellers?

Box2Many people tend to assume that if there is an increase in interest rates, it will become more difficult to buy or sell a home. From a home buyer’s perspective, rising interest rates could mean an increase in mortgage rates, making it more expensive to buy a home. This could also affect someone trying to sell their home because there could be a possibility of a potential buyer not being able to afford a higher price, which could reduce the market value of the home, and diminish the overall profit that the seller could make from the sale. Property values and housing prices are usually directly related to mortgage rate, however this does depend on the state of the economy. As long as the economy continues to grow, the interest rate increases will likely not have a significant impact on the housing market, because if mortgage payments increase due to the rising interest rates in a strong economy, employers would be able to afford to increase worker salaries, which would help compensate for the increase in prices.

The Bottom Line: What Will the Rate Increase Mean?

Because the economy has improved steadily after the pandemic, mortgage rates have already begun to increase even before the latest interest rate increase. This could cause some potential buyers to wait to purchase a home, and cause sellers to adjust their asking price, resulting in a moderation of the appreciation of housing prices. The housing market may also be affected by the numerous homebuyers that were able to lock into a low interest rate before the rate hikes, who may be less likely to move and sell as interest rates continue to rise, causing a higher demand for more housing. If the demand for housing continues to remain high, housing prices could have the potential to grow. Even if interest rates and home prices continue to rise, it is likely that the housing market will remain competitive as wages increase and the labor market improves.

If you are interested in buying or selling a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions about the latest increase in interest rates, contact Foundation Mortgage today for a consultation.

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