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hi this is Anita from Real Estate Crunch
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let's talk a minute about rising
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interest or interest rates and
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specifically how an interest rate can
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affect a home buyer and seller interest
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rates one of those crucial things that
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affect home buying and home selling
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let's first of all talk about how they
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affect a home buyer well first of all
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number one you will have higher monthly
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mortgage rates with a higher interest
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rate for example let's say you have a
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$300,000 mortgage at a 4% interest cost
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that would cost you about
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monthly principal and interest only but
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if that rate rises 1% just only 1% to 5%
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your monthly increase would be
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$1,610 so almost a $200 increase was
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just the 1% so imagine what happens if
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it raises 3% or 4% how much higher your
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monthly rates would be so that's why you
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know higher interest rates reduce the
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purchasing power a buyer that could
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maybe afford a $400,000 home at a 3%
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interest rate may only be able to afford
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$350,000 home at a 5% interest rate
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because of that difference of that 1%
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rate had made the difference of what
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kind of home they could afford so this
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reduction could limit choices it can
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push the buyers to settle for a less
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desirable property and you know or could
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delay purchases higher interest rates
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increase the overall cost of home
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ownership you know let's say a $250,000
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loan at 4% interest over 30 years you
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$179,674 in interest at 6% it jumps up
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289 and 589 so just that 1% jump it
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$100,000 and that's why a lot of people
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discourages people from buying it means
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that fewer first-time buyers can enter
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the market when there's higher interest
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rates because it is so much more
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expensive and there and it also has for
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market uncertainty there's a
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psychological impact you're you know
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you're paying more for
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it that's why there's a shift towards
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adjustable um interest rates or a arms
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arms to combat the rising costs some
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buyers turn to adjustable mortgage rates
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which have a you know lower initial
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interest rates but come with the risk of
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future increases so in other words if
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you do that type of interest rate you
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might end up with some higher increases
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and suddenly you might find that your
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interest rate has gone up high and
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suddenly you're paying much more than
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you would have how does it affect home
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sellers well first of all it reduces the
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buyer demand you have a lower demand and
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you might get fewer offers just because
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the interest rates are high um it could
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mean that there could be declining home
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prices a home that listed at 500,000
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during the low interest rate environment
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might need to reduce to 475 to attract
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buyers to a higher interest rate so
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right there you know it's $25,000 less
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for a home how homes may spend a longer
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time on the market there might be fewer
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move up buyers me meaning that buyers
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may not want to sell their property move
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to another property because there could
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be a fewer pool of buyers uh there could
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be a pressure for you to offer
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incentives maybe there's going to be
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fewer buyers out there you're going to
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need to offer different incentives which
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could temporarily reduce the buyers to
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buy the property you can have increased
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competition from new construction you
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know new home builders a lot of times
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have the resources they can be
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incentivized they can be quite
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aggressive you know rate buydowns or
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upgrades to lure buyers into the high
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interest rate market they might be you
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know giving them these extra things
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which you just can't compete with and
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there can be emotional and financial
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stress for sellers who must move due to
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life change like job divorce or
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downsizing you know the challenge of a
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high interest rate environment can be
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extremely stressful and financial strain
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so you know these might make you you
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know accept a deal which is less than
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what you want you know so you may be
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forced into a situation where you're
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selling at a loss just because you need
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to get rid of the property and you know
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things have changed there's lots of
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reasons why you know interest rates is
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important for the buyer and for the
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seller and you know that's why interest
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rates is an important aspect of buying
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or selling a home we've written a blog
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on this why rising interest rates affect
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buyers and sellers if you'd like to be
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able to learn more about this we suggest
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that you read this so you can understand
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a little bit more about this if you're
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you know looking to buy property or if
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you're looking to sell property this may
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help you to be able to understand a
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little bit more of some of the
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psychology you can use for that this is
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Anita from Real Estate Crunch we've hope
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that you've um enjoyed this podcast and
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if you have any questions or comments we
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sure love to hear from you thank you so
