Do interest rates affect house prices?

Do interest rates affect house prices?

percent blocks stacking up in house shape to show housing interest rates

What are interest rates? 

Interest rates are the fees charged by lenders on borrowed money. These rates are set by the Federal Reserve (known as the Fed), but they can be influenced by a variety of local market factors as well.  

To put it simply, interest rates are a lot like product prices—they change based on market conditions, supply, and demand. 

How are interest rates determined? 

Interest rates are influenced by the following factors: 
  • The Federal Reserve. The Fed is the U.S.’s central banking system. It controls the money supply in our economy. It sets the federal funds rate, which is the rate at which banks can lend to and borrow from each other overnight. This is called a benchmark rate because it serves as a basis for many other interest rates. Bonds, credit cards, and savings account interest rates are all affected by fluctuations in the federal funds rate. Changes to the federal funds rate influence interest rates to change as well.  
  • Inflation. Inflation is the sustained increase in prices over a given period of time. When inflation rises, the Fed may increase the federal funds rate to mitigate the increase. This increase also causes mortgage rates to rise, and in turn causes house prices to drop.  
  • Investor demand. When demand for investments in U.S. government bonds increases, their yields fall. As returns fall, interest rates will start to rise as investors look elsewhere for better returns. 

When you’re selling a house, it’s important to keep track of how interest rates are changing so you can try to get the most money on your sale.  

What are some local market factors that affect interest rates?  

Bureaucratic policies, competition between lenders, changes in the economy, and even global forces like currency value changes will contribute to changes in interest rates. However, economic conditions in your area such as unemployment or local housing inventory can significantly influence interest rates as well.  

Here are some of the most common local market factors that can affect interest rates:
  • Supply and demand for local real estate 
  • The health of the local economy 
  • Local tax rates and regulations 
  • Local property values 
  • The availability of financing options 
  • The local job market 
  • Local lender competition 
  • Housing inflation in your area 

These can all play a role in determining interest rates on mortgages and other types of loans, and they will have a significant impact on the price you can get for your house.  

Why do interest rates matter for the housing market? 

Interest rates impact the price you can get for your house because they determine how much the buyer will pay for a loan when purchasing your home, as well as how much they can get when they refinance the loan. Additionally, interest rates affect the amount of money available for potential buyers when purchasing a house. 

When interest rates are low, more people can afford to buy homes. When interest rates are high, demand falls.  

If you understand the local market, you’re in a better position to time the sale of your house.  


How do interest rates impact the real estate market and housing prices? 

Interest rates influence the cost of borrowing and can have both positive and negative effects on the real estate market.  

Low interest rates make borrowing money and purchasing houses more accessible. Higher demand for houses increases house prices, which is also called a seller’s market. When interest rates are high, however, there is a smaller pool of buyers, and sellers have to price competitively. Rising interest rates lead to stagnating or declining house prices as buyers struggle to qualify for loans. This is known as a buyer’s market.  

Supply and demand can also affect the price of houses in your area. For example, if there is a large influx of new people moving into an area that does not have adequate housing, prices can rise from this increase in local demand.   

How are home sellers impacted by interest rates and their influence on home price? 

Interest rates and home price have an inverse relationship—when rates are low, prices tend to rise, and vice versa. Home sellers should be aware of how changes in the economy and interest rates can affect the sale of their house.  

In a strong economy, where demand outpaces supply and low interest rates make home purchases more accessible, home sellers can price their houses high. If interest rates are rising, then you can expect more competition and fewer buyers, and you might have to lower your asking price.  

What can home sellers do to mitigate these effects? 

Fortunately, there are a few measures you can take as a home seller to try and maximize your profits. Selling your house before mortgage interest rates increase is the best way to ensure you can sell your house for a good price. You could also consult with professionals who understand fluctuations in the local market and can provide you with insights into what actions you should take to try and maximize profits.  

Another way to make sure you get the best price for your house is to sell to a cash home buyer like HomeVestors®.  

How can HomeVestors® help? 

When you sell to HomeVestors, you don’t have to worry about interest rates. With over 25 years of experience buying houses, our long-lasting relationships with lenders make financing simple. We can make the selling process as easy as 1–2–3! 
  • Free consultation. Our local property specialists can come over right away, sometimes on the same day you contact us. We offer a free consultation of your property that happens on your schedule.  
  • Fair offer. Once we’ve taken a look at your house, we can provide you with a fair, all-cash offer. Our offer won’t be based around fluctuating interest rates, and you don’t need to concern yourself with a buyer backing out due to not qualifying for a loan. We don’t charge any commissions or hidden fees, so you get to keep all that cash. 
  • Fast close. If you accept our no-obligation offer, we can close quickly, often in as little as 3 weeks. If you need more time, we are happy to accommodate.  

We’ve been helping home sellers get cash for their houses, in nearly any condition and in most situations, for over 25 years now. Let HomeVestors help you mitigate the effects of fluctuating interest rates and sell your house. 

Contact us at 866-200-6475 for a free consultation to get a no-obligation, all-cash offer on your house today!