Whether you're buying or selling, it's important to understand how interest rates impact each step of the process. This is true whether you're pursuing real estate goals in Albany and Corvallis, or anywhere else. Our real estate agents have more on the way that today's interest rates shape the housing market and how that affects you.

How Today's Interest Rates Are Shaping the Housing Market

Impact on Homebuyers

For homebuyers, the impact of interest rates can be significant. A higher interest rate means a higher overall cost for the home, higher monthly mortgage payments, and more of each payment going toward interest.

Given the impact of interest rate increases, locking in an interest rate while shopping for a home is a preferred option for many homebuyers. This is one reason why many buyers opt for a fixed-rate mortgage, rather than an adjustable-rate mortgage (ARM), where rising interest rates can have a significant impact on your budget.

Impact on Sellers

Interest rates can have a substantial impact on sellers, as well. Given that increases in interest rates lead to higher costs and lower buying power for buyers, rate increases can cause lower demand for homes. In an environment with higher interest rates, sellers may need to offer concessions or offer a buy-down to help the buyer achieve lower interest rates on their mortgage. When purchasing power for buyers is lower, pricing your home competitively becomes even more important.

Affordability and Buying Power

To illustrate the impact of even a small change in interest rates, it helps to have a direct comparison. Mortgage Calculator is a free tool to compare mortgages, which we used to compare two 30-year, fixed-rate loans with a $400,000 principal and slightly different interest rates. The difference is significant:

• With a 30-year, fixed-rate mortgage at a $400,000 principal and 7.0 percent APR, the monthly payment comes out to $2,661.21, and the total interest equates to $558,035.59.

• Drop the interest rate slightly to a 6.0 percent APR, and the difference is substantial. The monthly payment decreases to $2,398.20, and the total interest drops to $463,352.76.

Given the critical importance of interest rates, there's a saying in real estate that you marry the home, and date the rate. In other words, you buy the home now, and refinance your mortgage later when rates are more favorable.

Long-Term Perspective

One thing to keep in mind with interest rates is that, despite short-term fluctuations, real estate remains a strong long-term investment. A helpful chart from the Federal Reserve Bank of St. Louis illustrates how rates for a 30-year fixed-rate mortgage have evolved over time:

• In the early 1980s, rates climbed as high as more than 17.5 percent early in the decade, before declining over the next 10 years.

• Throughout the 1990s, rates mostly stayed within a window of 7.5 percent to 10 percent, showing significantly less variation than the previous decade.

• From the first decade of the 2000s, the story was quite similar in terms of low fluctuation. However, this time rates hovered between 5 percent and 7.5 percent.

So, why does real estate remain a strong investment despite interest rate fluctuations? Consider the value of the financial opportunities that you unlock as you build equity in the home, and the long-term appreciation in home values over time.

In a challenging rate environment, it's crucial to seek help from experts, including your real estate agent and lender. Ready to shop for your next home? Start with our new listings in Albany and new listings in Corvallis. Then contact us to buy and sell homes throughout the Albany and Corvallis, OR area.