Mortgage Rates, Home Values & The Rental Market

September 28, 2022

Mortgage interest rates play a huge role in home values. These rates are now at 2002 levels, up sharply from all time lows in 2021. The average 30 year fixed mortgage now sits in the high 6’s versus the high 2’s a year ago. These higher rates equate to higher payments for those needing a mortgage to purchase a home. Let’s face it, that’s pretty much everyone. If you’re lucky enough to have a 20% down payment, you’re still financing 80% of the total purchase price. As of today, buyers are paying twice as much interest for the same home.

One of the reasons, amongst many, that home values rose during the Pandemic was lower interest rates. Lower interest rates allowed buyers to pay more money for a home while keeping an affordable payment. While buyers look at purchase prices, the most important factor in their home buying decision is the affordable monthly payment. It’s very similar to buying a car. Most people have a comfortable car payment figure, and then they shop within that monthly payment window.

What do higher mortgage rates mean for home sellers? Higher rates mean that a homeowner’s home is not as affordable as it was last year. Higher rates mean there are people in the market to purchase a homeowner’s home. Higher rates mean less demand for a homeowner’s home. All these things add up to lower valuations for all of our homes. If you’re looking to sell your home in a market with higher rates you’ll need to adjust your sites when it comes to your sales price. It’s not a reflection on your home, it’s finishes, etc., but a reflection of cost of borrowing money.

The Fed’s decision to raise rates to stop inflation is directly removing home buyers from the housing market. These buyers will now be renters, which will increase the number of tenants looking to rent homes. Without a higher supply of rental properties, we will most likely be looking at an increase in rental rates for tenants. The supply of rentals might increase slightly with cash buyers purchasing properties and renting them out in the coming years, but that’s not going to put a dent in rental rates.

If you’re looking to rent a home out instead of selling it please reach out to us. We have a local property management company and would be happy to discuss your options.