How Interest Rates Impact Sellers

The most important component of a home sale/purchase is unquestionably money. When a money problem arises, both buyer and seller are affected and an entire transaction can be derailed in an instant.

According to CNNMoney.com, forecasters have predicted mortgage interest rates will hit at least 7% by the end of the year.

Sellers, how does this impact you and why should you care?

Fewer Buyers As rates increase, the number of buyers who can afford to buy and qualify for a home loan will drop. Interest rates have a direct impact on a monthly housing payment, so any rate increase will have a significant affect on what a buyer can afford. These buyers will either lose the ability to buy altogether or have to lower their price range.

At the other end of the buyer spectrum are buyers who still have the financial ability to buy, but believe in “waiting for a better deal” on their financing. Well, they could be waiting a lifetime…the fact is no one on earth knows when or if this “better deal” will materialize.

More Time The average days on market (days from time of listing to closing) today is 117 days in Orlando metro. With fewer - and choosier buyers – remaining in the market, be prepared to add weeks or months to your home sale. The buyers who remain will be even more cautious, conservative and selective in their home purchase, which means more time on market for sellers.

Price Reduction The longer a home is on the market, the more likely a price reduction will take place. With buyers taking a more conservative approach in their home purchase and taking more and more time to make a purchase decision, homes that are not priced competitively will quickly go stale on the market. The seller of a stale home who truly wants to sell will be forced to reduce their price.

Lower Offers When a seller receives an offer on their home, it is more likely that they will receive a lower offer. Buyers are feeling the pinch from their lenders, are limited in what they can buy and expect to squeeze every last dollar out of their home purchase. That squeeze will be forced on the seller. Price reductions aren’t always enough for buyers - they aren’t concerned if a seller has already dropped their price once, twice or more.

Your New Home As rates increase, your ability to buy a new home is affected. You may have fallen in love with a $450,000 home; however, should your lender lower your approved price range with a rate increase, you may no longer be able to afford that home. That means back to the drawing board and back to house hunting at a lower price range.