It seems strange to talk about rising interest rates after being so low for so long, but here we are and we must adjust. Many potential home buyers stop looking at homes when mortgage interest rates begin to rise. Realtors will tell you that they see fewer people at open houses during periods when interest rates are higher.
This is understandable to a certain degree because higher interest rates may prevent some buyers from qualifying for the amount of financing they will need to buy the kinds of home they want. There are many other buyers, however, who should continue to look and make a home purchase during raising interest rate periods.
Remember, home prices typically go in the opposite direction of interest rates. When rates are low, many buyers are actively seeking to buy real estate. Higher rates usually discourage many buyers which results in too many homes being chased by too few buyers. This situation has the tendency to drive prices downward. So, one of the best ways to make a good real estate investment is to do the opposite of what most other people are doing. If most people are buying, this probably the time to sell. If most people are not buying, this is probably the time to make a purchase.
Let’s assume that you buy a home in a high interest rate market. You will find many motivated sellers who have to sell their home and get on with their lives. Their motivation and the lack of many competing buyers will prompt them to negotiate a better-than-usual selling price. Because it is a high interest rate market, you will have to pay a rate that is not ideal. You can, however, go back to your lender when rates drop and refinance the loan to a lower rate. This is a better situation than paying top dollar for a home in a low interest rate market because you can never renegotiate the selling price.
ADVICE: How can you know what kind real estate market exists at any point in time? Only by talking to a professional who follows the market on a full-time basis, your Realtor®. With the use of multiple listing and computer systems, your Realtor knows recent selling prices, current asking prices, and the availability of homes in your price range. Realtors are also aware of local interest rates. Buy your next home with the assistance of a Realtor®.