Purchase agreement for new house

Why Soon-to-Rise Mortgage Rates Are a Good Thing For Real Estate

Could the end of historically low mortgage rates be near — and could it be a good thing for real estate?

For more than a year, many homebuyers have enjoyed borrowing rates lower than 3%. These low rates somewhat offset rising home prices, encouraging buyers to stay active in the market rather than waiting until inventory leveled out.

However, according to a recent article in REALTOR Magazine, the Federal Reserve is hinting at raising interest rates — a shift that would also raise the rates on mortgage, credit card, and car loans in the process.

How Did Mortgage Rates Drop So Low?

The recent REALTOR Magazine article also points out that during the pandemic, the Federal Reserve Board purchased $40 billion worth of mortgage-backed securities each month as part of the stimulus program. This approach brought a “surge of liquidity” into the mortgage market, allowing lenders to drop interest rates.

As we exit the initial stages of pandemic and collectively transition towards more certainty, the Fed plans to slow the rate of bond purchases, effectively pushing fixed mortgage rates higher than they’ve been since the pandemic started.

Why are Rising Mortgage Rates a Positive Sign?

Although most would consider rising rates a potential challenge, the fact is that higher interest rates mean the economy is moving in the right direction.

For one, higher interest rates are associated with a stronger dollar and less inflation. Plus, higher interest rates give banks more incentive to approve loans, which is good news for buyers who are seeking them.

In addition to boosting buying power, the buzz around rising mortgage rates has the tendency to push serious homebuyers into action. In other words, knowing that mortgage rates will soon rise above 3% may encourage those “still on the fence” to make an offer sooner rather than later, and a competitive offer at that.

How to Leverage Rising Mortgage Rates as a Real Estate Agent

If you primarily work with home buyers, rising mortgage rates is a great topic to re-engage leads.

Sending an email to your list about the impending spike or making phone calls to warm leads letting them know that now is the best time to buy could spark some fruitful conversations that lead to new business.

Either way, this is the type of information people are looking to their trusted real estate advisers for, and it’s the perfect opportunity to educate your sphere of influence and offer your guidance.

If you’re a listing agent, higher mortgage rates may give your seller a better, more serious pool of offers to choose from both before and after we see mortgage rates rise.

Still, depending on your seller’s market and the trends in that market, it may be wise to see if other sellers in the area are dropping their prices to balance out higher mortgage rates and proceed accordingly.

Real Estate Career Switch Kit