What I’m Telling Clients Trying to Sell Their Home Now About Interest Rates

According to the St. Louis Federal Reserve, average sales prices of homes increased by 28% over the last five years. This surge, combined with rising interest rates, has made homes less affordable for potential buyers. On the flip side, current homeowners have seen their home equity soar, prompting many to consider selling. 

However, the recent uptick in interest rates has cooled the housing market, tilting the balance in favor of buyers. This means prospective sellers may face a more competitive market. I advise my clients that selling may not be the best move right now, but it depends on individual circumstances.

Key Takeaways

• It’s essential to monitor and understand the current housing market dynamics before making any selling decisions. There is no “one-size-fits-all solution.”
• The possibility of an inverted yield curve which could bring interest rates down and making selling more favorable in the years ahead.
• Clients thinking about selling their home should carefully consider their next buying options, especially when mortgage rates are high
• If your client decides to sell, offering seller credits may make their home more appealing to potential buyers  

The Federal Reserve’s control over interest rates affects loans for homes, cars, credit, and businesses. On May 1, the Federal Reserve announced maintaining the federal funds rate between 5-1/4 to 5-1/2 percent, aiming for maximum employment and a two percent inflation rate over time.

Historically, the Federal Fund interest rate in the U.S. has averaged 5.42 percent from 1971 until 2024, but due to lower averages over the past decade, current rates seem high. Rates reached an all-time high in March of 1980 to combat inflation, and an all-time low in 2008 to stimulate the economy during the Great Recession.

Important

On May 1, the Federal Reserve announced they would maintain the federal funds rate between 5-1/4 to 5-1/2 percent.

Homeowners may find themselves in unfamiliar territory with current rates. Investopedia reported on May 14 that an average 30-year fixed mortgage is 7.05%, while Redfin notes 88.5% of mortgage-holding U.S. homeowners have rates below 6%.

While the equity in your current home is significant, financing your next home could entail higher rates and prices, potentially leading to a larger mortgage for a similar or smaller property.

To combat this, you might consider working with a realtor to move to a more affordable area, lock in favorable rates, demand seller credits, and use the profits from the sale to maximize your down payment on your next home. Seller credits are costs that are normally the responsibility of the homebuyer (such as some of the closing costs) that are paid out by the seller.

What I’m Telling My Clients

It may not be the best time to sell, but it depends on personal circumstances. The Fed Summary of Economic Projections suggests an upcoming inverted yield curve, which could lead to lower interest rates, making selling more favorable in the coming years. As home affordability decreases, the rental market grows, too.

The Bottom Line

We often fail to recognize the current situation until it changes. Rates and home prices might seem better or worse in retrospect. If moving is unavoidable, aim for the summer months, consider offering seller credits or renting, and use a realtor to ensure a competitive listing price.

Read the original article on Investopedia.