Low interest rates have been a powerful tool for home sellers across the United States. Enabling a strong and explosive pool of buyers, spending power was seemingly limitless with competitive bidding wars and crazy high final selling prices. As the cost of everything from gas to groceries raises for Americans from coast to coast, the government is looking to curb inflation using a historic tool to help decrease spending and better manage supply and demand.
What is the Fed Interest Rate? How does it affect my mortgage loan interest rate?
The Federal Reserve acts as a bank for banks. Helping to facilitate the monster that is the American financial market, the Fed provides various services to the United States government, US financial institutions, and helps to shape financial policy in politics. Part of the Fed’s massive list of responsibilities is setting the rates by which banks borrow money. An overnight loan, or a loan that a bank makes with another bank over a short period of time, is governed by the interest rates set by the Fed.
As such, the cost of doing business as a bank rises.
With interest rates reaching over 4% for the first time in years, this means that the cost of borrowing mortgages, credit, for automotive loans and more will rise with the Federal Reserve’s set interest rate.
What does this mean for home buyers and sellers in Michigan?
It can be tempting to panic as one witnesses ballooning inflation and hears the news of a Fed interest rate raise. However, it is important to consider the beast that is the American real estate market. Many factors are at play that will help ensure the stability and success of the market for home sellers and buyers.
The COVID-19 pandemic continues to have a profound impact of the real estate market as a whole. Fueled in part by the embrace of mobile workforce’s, professionals continue to explore their options for housing often migrating out of major cities and to more affordable areas of the country offering amenities more closely aligned with their desired lifestyle. This migration is set to continue as companies continue to make decisions as to whether or not to require their workforce to return to the physical office or to allow remote/hybrid work.
Builders have also been rapidly increasing new development in many areas of the country contributing to an increase in inventory in answer to the already severely strained pre-pandemic market. New construction has helped to balance the housing market and provide more options for buyers. However, inventory continues to be light compared to demand signaling strength in the market from buyers.
And finally, young people continue to seek the purchase of a home in an effort to fulfill their financial and life goals. With Gen Z soon to begin flooding the market with healthy job prospects and projected ample spending power, it’s safe to expect strong demand to remain a constant in the real estate market.
Will rising interest rates decrease the value of my home?
As a home seller, you are probably most interested in the value of your home. While the Fed is looking to curb demand for goods in the marketplace, it is safe to assume that this will not have a profound impact on the value of your home. Given the strength experienced in the real estate market, it is expected that home buyers will carry the additional cost. As interest rates rise, buyers will pay more their loans but this does not necessarily mean that home sellers should experience any difference in the value of their home. Explosive demand for homes in all price ranges should mean that demand stays steady across the board.
If you would like professional guidance in the evaluation of your prospective home value and sale, we invite you to contact one of our consultants to gain clarity regarding your position in the market. Selling in a dynamic market doesn’t have to be confusing. Let us guide you toward the successful sale of your home.