Higher Mortgage Costs for Buyers
Mortgage rates rise when interest rates go up. That’s what makes monthly loan payments more expensive for the same home price. As a result, many potential buyers find it harder to afford a mortgage.
Reduced Purchasing Power
Higher borrowing costs make homes less affordable. Some buyers, particularly first-time buyers and middle-class households, could postpone purchasing or opt for smaller or less expensive homes.
Drop in Refinancing Activity
And when rates are rising, refinancing becomes less attractive. Because fewer homeowners apply to refinance, there are less opportunities for cash-out, and the market slows down.
Fewer Homes on the Market
One quarter of the people with those rates choose not to move because obtaining a new mortgage is more costly. That shrinks the pool of homes for sale, making it more difficult for buyers to find and open house hop.
Slower Home Sales
Home sales are slowing because of higher mortgage rates. Homes will take longer to sell, and sellers may have to reduce prices in order to close a deal.
Pressure on Home Prices
Higher borrowing costs tend to cool home-price growth. Prices may not rise in some markets, or they could stabilize, even decline. However, tight housing supply in many areas helps support prices.
Higher Costs for Real Estate Investors and Builders
Investors could pay more to borrow, meaning lower returns. Developers encounter higher costs for construction loans, delaying new housing projects.
Shift Toward Renting
As it becomes less affordable to buy, more people may rent instead. This raises demand in the rental market that can push up rents, particularly in places where homeownership is increasingly out of reach.
Broader Economic Impact
More than homebuyers are affected by rising rates. Consumers facing higher mortgage payments may have less to spend on other things, and slow land sales can affect jobs in related industries.
The “Lock-In” Effect
Homeowners with low-rate mortgages are less likely to sell, limiting available housing supply. This keeps inventory tight even as demand weakens.
