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Why Do Higher Interest Rates Make Buying and Selling Homes Harder?
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Mar 21, 2025
Interest rates shape the housing market, affecting both affordability and market trends. Higher rates make borrowing more expensive, which influences how buyers and sellers react. Understanding these changes can help you navigate the market wisely. Watch now to see how rising interest rates could impact your next real estate move! Learn more about Why Rising Interest Rates Affect Homebuyers And Sellers on our blog: š https://real-estate-crunch.com/why-rising-interest-rates-affect-homebuyers-and-sellers/ #RealEstateCrunch #InterestRates #HousingMarket #HomeBuying #MortgageRates #RealEstateTrends #HomeSelling #MarketUpdate
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[Music]
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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 it's
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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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$1,432
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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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a $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
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$250,000 loan at 4% interest over 30
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years you know is
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about
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179,674 in interest At 6% it jumps up
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over
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$100,000 At
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$289 and 589 So it just at 1% jump it
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jumps up
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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 firsttime 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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AR A RMS 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 mean 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 buy downs 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 And if you'd like to
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be able to learn more about this we
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suggest that you read this so you can
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understand a little bit more about this
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If you're you know looking to buy
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property or if you're looking to sell
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property this may help you to be able to
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understand a little bit more of some of
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the psychology you can use for that This
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is Anita from Real Estate Crunch We've
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hope that you've um enjoyed this podcast
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and if you have any questions or
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comments we sure love to hear from you
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Thank you so much for listening
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