How Mortgage Rates Are Impacting Sellers

Many factors contributed to the historic seller’s market that endured throughout the pandemic, which saw home prices rise by more than 50% in two years in some states. One of the biggest drivers of that growth was dirt-cheap mortgage rates.

“The low interest rate environment has created an unprecedented opportunity for not only buyers getting a great rate but homeowners seeing the value of their homes increase exponentially,” said Bill Gassett, founder of Maximum Real Estate Exposure.

The environment that made that dynamic possible for all these months, however, is slowly fading away.

Buyers Can’t Afford as Much Home

Make no mistake about it: Mortgage rates are rising in 2022 — and they’re rising quickly.

“Only last week, the 30-year mortgage rate was 4.16%,” said WeLoans CEO Lucia Jensen. “In just a week’s time, the rate is up to 4.47%, representing a 0.31% jump in seven days.” Every added basis point on the interest rate drives down the amount of money that buyers can borrow — and therefore reduces the amount of house they can afford.

When Buyers Can’t Buy as Much, Demand Falls

On March 18, the National Association of Realtors reported that home sales fell in February by 7.2% — much more than expected — to a six-month low. While it’s too early to diagnose a definitive cause and effect, it’s impossible to ignore that rising rates immediately preceded a steep decline in demand.

When Demand Falls, Sellers Have to Lower Prices — Usually

Rising rates reduce demand; and, when demand falls, prices should, too.

“It’s important to remember that there is a consistent correlation between interest rates and home prices,” said Ward Morrison, president and CEO of Motto Franchising, LLC. “When interest rates increase, affordability of homebuying decreases, causing an inverse reaction to home valuation. To offset this issue, the market stabilizes and home prices go down.”

Sellers Should Expect More Headaches From Empowered Buyers

As rates rise, demand slows and prices fall, the balance of power will slowly shift from the seller to the buyer — and buyers soon will be able to make demands that would have pushed them out of the running in the red-hot days of the 2021 bidding wars.

“Increased mortgage rates will also temper the volume of buyers willing to forgo inspection periods and invest 4% to 6% to 8% of the home’s appraised value in punch-list improvements that sellers were able to ignore during the COVID real estate buying frenzy,” Hanson said.

  • Courtesy Andrew Lisa, Yahoo Finance

Sun, April 24, 2022

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