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How Will Interest Rates Affect Home Prices?

Why interest rates won’t cause home prices to fall any time soon.

Will home prices fall now that interest rates have gone up? We’re getting asked this question a lot, so we wanted to share what you should know about rising rates in our market.

Interest rates have risen by 2% on average since the start of the year. This has affected homebuyers’ affordability by 20%. A 1% rise in interest rates affects your affordability by 10%, so interest rates have a bigger impact on what you can afford than home prices.

What will happen to home values because of this hike? Home values have stayed very steady these past few months, and there’s a good reason why. Interest rates went up while we had historically low inventory. The cause behind this inventory shortage is the lack of home construction since the last recession, which has caused us to be short 25 million homes. This huge shortage will take about 18 years to correct.

Waiting is the exact opposite of what you need to do.

It won’t be fixed overnight, so the market will either still favor sellers or be a bit more balanced. If you’re waiting for home values to go down before you buy, don’t. That’s the exact opposite of what you should do. You need to take advantage of today’s market before interest rates continue to go up because they will affect your affordability more than home values.

Your next step would be to reach out to us and start the conversation. We’d be honored to set up a strategy session with one of our lead agents to talk through your questions and concerns. Just call us at (651) 998-9829. We would love to help.

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