The Impact on Home Prices

Interest rates and home prices are closely connected. When rates rise, price growth often slows because fewer buyers can afford higher prices. When rates fall, prices tend to rise as demand increases. However, prices don’t always move immediately. Other factors like supply, employment, and local market conditions also play important roles.

How Interest Rates Affect Sellers

Higher interest rates can reduce the pool of potential buyers, leading to longer selling times. Sellers may need to price more competitively or offer incentives. In lower-rate environments, homes often sell faster and closer to asking price due to increased demand.

Homeowners With Existing Mortgages

If you already own a home, interest rate changes still matter. Homeowners with variable-rate mortgages may see their monthly payments increase when rates rise. Those with fixed-rate mortgages are protected for the duration of their term but may face higher costs when refinancing. Falling rates can create opportunities to refinance and lower monthly payments, depending on fees and loan terms.

The Lock-In Effect

When interest rates rise significantly, many homeowners choose not to sell because they don’t want to give up a low-rate mortgage. This “lock-in effect” reduces housing supply, which can keep prices higher despite lower demand.

Why Timing the Market Is Difficult

Trying to time interest rates perfectly is risky. Rates change based on economic conditions that are hard to predict. Housing decisions should be based on personal affordability, stability, and long-term plans rather than short-term rate movements.