How Interest Rates are Affecting the Housing Market

It’s no secret that the housing market has fluctuated this year. From high competition to increased mortgage rates, 2023 has been complicated. While the housing market has been complex, with the right agent by your side this December, buying your home doesn’t have to be.

One of the biggest factors in today’s housing market is interest rates, and we’re here to share our knowledge of them with you. If you’re looking to buy going into the end of 2023-beginning of 2024, here’s what you need to know about how interest rates are affecting the housing market.

What Is Interest In the Housing Market?

When you buy a home, your mortgage loan comes with an interest rate, one of the most important factors in your mortgage agreement. In this context, interest is the cost of borrowing money for that mortgage loan, and is represented by a percentage that you pay monthly. Having a good interest rate could save you tens of thousands of dollars, so it’s important to be aware of what they look like for you before you buy.

As various factors influence the housing market throughout the year, the cost of housing and the homeowner’s interest rate can stay the same or fluctuate.

What Factors Influence Interest Rates in the Housing Market?

Several factors in the housing market can affect interest rates in the housing market, including: type of interest rate, loan term, credit score, loan amount, down payment, and home location. It’s important to be aware of all of these as you explore your future housing options.

Type of Interest Rate

There are two types of interest rates: fixed-rate mortgage and adjustable-rate mortgage (ARM). Depending on whether you have a fixed-rate mortgage or an ARM, your interest rate will either stay the same for your mortgage’s lifespan or fluctuate, respectively.

Loan Term

Depending on how long you have to repay the loan, you could be paying more or less interest. If your loan is short-term, you will have a lower interest rate and higher monthly payments. Conversely, if your loan is long-term, you will have a higher interest rate and lower monthly payments.

Credit Score

Your credit score is crucial to getting a loan and determines which interest rate you qualify for. Depending on if your credit score is high or low, your interest rate will be lower or higher, respectively.

The good news is that, if your credit improves after you close on a home, it’s possible to refinance and decrease your interest rate. Make sure to check with your broker to see if it’s an option for you before you buy.

Loan Amount

Your mortgage loan amount can be calculated by adding your home’s price and closing costs, then subtracting your down payment. If your loan is particularly small or large, the interest rate could be higher.

Down Payment

Generally, the size of your down payment affects how much your interest rate is. If you make a larger down payment, then your interest rate will be lower. On the other hand, if you make a smaller down payment, then your interest rate will be higher.

Fortunately, if you’re a first-time homebuyer, you can usually find a loan with a small down payment and a low interest rate.

Home Location

Interest rates differ depending on which state and area you’re in. An experienced real estate agent can help you determine which areas best fit your needs and their interest rates.

How Are Interest Rates Affecting the Housing Market?

When interest rates are higher, the housing market tends to slow down. This is because, due to the increased interest rates, the cost of home ownership becomes more expensive, making it less in-demand. On the other hand, when interest rates are lower, the housing market booms. Since interest rates are lower, the cost of home ownership decreases, making it more in-demand.

Throughout 2023, low housing inventory has led to increased housing costs and higher interest rates. While sales have happened quickly, which has been favorable to the sellers, many aspiring homebuyers have faced challenges in finding somewhere to live.

Moving into the winter of 2024, most real estate professionals predict that increased interest rates, which caused a slight slowdown and lots of competition between aspiring homebuyers in the first half of 2023, will continue. As a result, home prices will decline, but experts don’t anticipate a market crash or any significant turns.

As we approach the end of the year, and competition between aspiring homebuyers continues, it’s important to be aware of these factors that affect the housing market. By learning about these things and having an experienced and trustworthy agent in your corner, you can find the home that fits your best “interests”.

The Right Fit for You

While higher interest rates have made the housing market in 2023 complicated, buying a home in 2024 doesn’t have to be. Make sure to do your research on the factors that influence the interest rate in your area, and learn about your options. If you would like to explore your options, the right agent can help you learn what is the best fit for you. By working with an agency like Michael Carr & Associates, Inc., Anything Real Estate®, your agent can help you find the right home to suit your financial needs.

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