What Could Be Good About Interest Rates Rising?

February 7, 2022 | Inside Scoop | By: The Goodhart Group

As we enter the era of rising interest rates – almost a certainty this year –  many are being VERY dramatic about this topic as if this has never happened before. Some are crying hysterically that rates are jumping to 10%-plus. This of course, is false. They are extremely low and hopefully remain under 5%, which is still VERY low historically. We have been spoiled by many years of low-interest rates. Let’s explore how in this lies some potentially good news.
1. When interest rates rise, it’s usually a sign of an overheating or rapidly growing economy, and rising incomes and rising rates may slow inflation, which has grown quite a bit lately.
2  Anyone thinking of buying a home now may want to accelerate the process to lock in rates before they go higher. This could fuel home prices to rise till the supply-demand ratios become more balanced.
3  As rates rise, fewer people will be able to afford certain homes buyers may be bidding on, thereby reducing the number of multiple bidders, especially in areas that are overheated with more limited supply.
4  Sellers may now re-adjust their pricing expectations to more realistic levels.
5  The excessive price increases should slow, creating more buying opportunities.
6  Higher rates may start to alleviate the dramatic inventory shortages around the country.
7  The price gougers may lose their audience as people cannot afford to pay for those homes now that are likely overpriced.
8  Mortgage lenders who now may see lower volume may become more competitive to keep volume up.
9  Most people don’t stay in a home for 30 years. The average is around 13 years, so the extreme focus on 30-year fixed-rate mortgages may shift further towards shorter-term mortgages.
10  The excessive pace of the market could slow a bit, allowing people to breathe better while making these big decisions.
11  Those that may have been waiting to sell may now see the window for peak pricing closing and decide to list.
12  Those who rely on savings stand to earn more interest income from their cash investments. They will have more money to spend, further fueling the economy. About 70% of the US economy is consumer spending.
13  Higher rates may drive some to rent instead of buy, further fueling rental prices and making investment properties even more attractive to those diversifying investment portfolios. Higher returns in an inflationary environment can be a ‘safer’ place for cash.
The Bottom Line
A buyer getting a 4% interest rate on a 30-year fixed mortgage on a $400,0000 home has a monthly mortgage payment of $1,900. The monthly payment for this same buyer with a 5% rate on a 30-year fixed mortgage rises to $2,138. A 1% increase in interest raises this monthly payment by $238, or roughly 13%, a very manageable number for most in a strong economy with rising incomes. 
Wondering how the potential rise in interest rates could impact your plans to buy or sell  Please reach out today; We’d love to chat!

Contact Us

  • This field is for validation purposes and should be left unchanged.