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What will interest rate increases do to the real estate market?

On Behalf of | Jun 15, 2022 | Real Estate Law |

Property values for commercial and residential real estate are constantly in flux. Everything from the season when a seller lists the property to recent economic reports can impact how much a property is worth. In general, prices tend to trend upward over time, making real estate a viable investment option for most people who can afford to own real property.

Recently, homeowners in Massachusetts have seen an increase in property values, while prospective home buyers have found themselves fighting an uphill battle. There have been bidding wars that lead to houses selling within hours of listing and for thousands of dollars over the asking price. Prospective buyers have found themselves in an interminable limbo where their financing seems capable of buying less and less housing as time wears on without an accepted offer.

Complaints about prices and housing supply shortages have led to action by regulatory agencies. Federal policymakers have increased interest rates in a move that will impact how much interest people pay on their mortgages. What impact will those changes potentially have on the current Massachusetts real estate market?

The goal is to cool the market off while avoiding a recession

Increasing interest rates is an effort to stave off the concerning levels of inflation reported in recent months. Even a small increase in interest can massively increase how much someone pays for financing a transaction over the course of a 30-year mortgage. With money costing more to borrow, people will be less likely to overextend themselves on houses, which could reduce the demand in some markets.

Properties may end up listing for slightly lower amounts, and demand may decrease because of the current cost of financing. However, a slower market doesn’t always mean a drop in prices. Some experts warn that interest rate hikes alone won’t be enough. Higher financing costs can translate to less demand and then fewer people listing their properties for sale, which can help markets maintain previous price increases.

When possible, being strategic about when you list your property and when you buy real estate can help you get the best price for the investment you intend to make. It can also maximize the return on that investment. Learning more about the local market and relevant real estate laws can help you be a savvy seller or a well-prepared prospective buyer.