How the Rise in Interest Rates has Affected our Market

Hi, this is Peter Parker with the Peter Parker Home Selling Team in Sacramento. Welcome back to our video blog! Today, I would like to talk to you about the increase in interest rates which we have seen both locally and nationally over the past few months.

I have been warning clients about the coming rise in interest rates all year, predicting that interest rates would be in the mid 4s by the end of the third quarter or beginning of the fourth quarter. At the end of the third quarter that is exactly where the rates are. What does this mean to buyers and sellers?

Though interest rates have increased over the past few months, looked at in an historical context, the rates are still very low. I remember in the early 1980s when interest rates were in the teens, reaching as high as 16%. As we bounce back from the historical lows that we saw late last year or early in the year, the rates seem to be reaching a number that is much more consistent with historical trends. 

Though we may have been a little spoiled with the all-time low interest rates, the jump still has a very real effect on buyers.  For each percent that the interest rate goes up, buyers lose 10% of their purchasing power. We had clients, for example, that were shopping for homes around $350,000 in April and early May. If they were unable to find a home, get into contract and close escrow by July or August, they will now have to look at homes in the $315,000 to $320,000 price range. As prices continue to appreciate in the Sacramento, this has been a “double-whammy” for buyers.

Although, we have seen interest rates go up a full point, many experts believe that interest rates will continue to rise, reaching perhaps 6% or 7%. This is the level where we will find the most stability. So, if plan on waiting for interest rates to drop again, you may be out of luck. It may be best to buy know before interest rates increase even more.

For sellers, the rise in interest rates is an important topic as well. Sellers need to realize that if they are trying to get top-dollar for their home, the increase in interest rates will shrink the pool of available buyers.

If you have any additional questions about interest rates or real estate in general, or if you or someone you know is looking to buy or sell a home, please give me a call at (916) 585-3636 or send me an email at Peter@PeterParkerTeam.com. Thanks and we look forward to hearing from you!