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Effect of Rising Interest Rates on the Real Estate Market

Updated: Mar 20

Before we get into the effects of rising interest rates, you should know the difference between seller's and buyer's markets.

A seller's market is when the supply of available homes is low and demand is high. The past few years have been an excellent example of a seller's market. Especially when interest rates hit a historical low, this made buying a home more feasible for the average family. As a result, many more buyers hit the market because the lower interest rates helped them qualify for a loan.

Now that interest rates are rising, many buyers have had to adjust their purchase price or drop out of the market altogether. Why? Because the increase in rates made it more expensive to own a home, and many buyers could not qualify for a loan with the higher rates.

The rise in interest rates has cooled off, remaining at 7% to 8%. So while there are still active buyers out there, now sellers are competing over the same buyers. In addition, as time progresses and the inventory rises, the buyer's market gets stronger as buyers now have plenty of homes to choose from and will take advantage of this in negotiating a purchase.

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