Why are Interest Rates Rising for Homes in the US?

Multiple Factors Have Caused the Rise

Buying a new house is an exciting life event, but hearing about the rising interest rates on mortgages can damper the whole process. Learning about what’s causing this spike can make the experience less confusing or stressful if you’re currently in the market for a new place to call home.

Recently, the Federal Reserve increased mortgage interest rates, making it more expensive to buy a home. In fact, according to the U.S Census Bureau, new home sales were down about 13% in March of this year compared to March of 2021.

This can cause the market to slow down, adding to the fact that there are fewer homes for sale in general. With the competition for finding the perfect home even stiffer and mortgage payments becoming less affordable, it can seem like too challenging to do right now.

The good news is a silver lining exists behind higher interest rates!

What Causes Interest Rates to Rise?

The Federal Reserve doesn’t directly increase mortgage rates, but they influence the way the numbers go, along with many other factors. If the economy is doing well, this can cause interest rates to go up. That’s because the better the market, the more people are likely to spend out in the world.

Inflation can also be the cause of high-interest rates. The higher inflation rises, the higher interest rates will increase because lenders will want higher mortgage rates to make up for the decrease in purchasing power.

Inflation spiked to its highest level in four decades, reaching 7.9% in February of 2022 compared to the previous year. This absolutely could have an impact on the rise in mortgage rates.

Silver Lining With High Mortgage Rates

There is a potential positive outcome at the end of the high-interest rate and inflation tunnel. The increase in mortgage rates can slow the housing market, which can make home prices decline. Home prices could decrease as much as 40% in some regions of the U.S., according to experts from CBS news, if mortgage rates continue to rise steadily.

That means you may be able to find a great house at an affordable price shortly! It also means that you’ll pay less in a mortgage throughout your repayment schedule than you usually would.

Additionally, if people are less inclined to buy a house right now, the amount of competition will be affected as well. Higher mortgage rates could lead to fewer bidding wars when finding a home you love.

You also won’t have to offer way over the asking price during a bid if there is lots of competition! More people getting priced out of being able to buy a house means there is a lot more room and options for people who still can make the purchase.

Higher Interest Rates Can Be Good or Bad

The rise in interest rates for homes across the country can disappoint many people, especially those interested in buying their first homes. However, depending on where you look, housing prices and competition for all properties may drop dramatically. If you consider both things, you may still be able to find a dream home within your budget!