The words on everyone’s lips right now? Interest rates. The recent move in mortgage rates above 7% has certainly gotten everyone’s attention. The average 30-year fixed mortgage rate recently reached 7.12%, its highest level since May 2024, according to CTInsider.com.
But higher rates haven’t stopped buyers from buying. We are still seeing motivated buyers actively looking, writing offers and purchasing homes – they’re simply being a little more thoughtful about the numbers and their monthly payment. We’re also seeing homes come on the market and take offers.
What does that mean for the real estate market?
First, don’t panic. Real estate is a market that naturally ebbs and flows, and changing interest rates are part of that cycle. Higher rates can cause some buyers and sellers to pause, but they can also create opportunities for buyers who are prepared and sellers who understand how to position their homes in the current market.
As we move into the heart of the Fall market, we expect to see buyers and sellers adjust to the current rate environment and the market find its rhythm.
So, what happens when rates rise? Higher rates can affect the market in several ways:
- Some buyers may take a wait-and-see approach, hoping rates improve over the next 6–12 months. They may choose renting over purchasing.
- Buyer purchasing power can change, meaning monthly payments may be higher at the same purchase price. A $500,000 home at a 6% rate would be about $3,460/month. A $500,000 home at a 7% rate would be about $3,760/month ($300/more per month). This mortgage calculator at Raveis.com/mortgage is a great tool.
- Competition can shift. With some buyers stepping back, those who remain in the market may have more opportunities to negotiate.
- Creative financing and negotiation strategies can become more important. Depending on the situation, options such as seller-paid closing costs, a 3-2-1 rate buydown, or other concessions may help make a transaction work, allowing the seller to get the price they want, and buyers to stay within a comfortable monthly payment.
- Sellers may have more flexibility around timing. Some homeowners may choose to wait until Spring, while others may recognize that there are still motivated buyers in the market today.
- Move-up buyers have an important consideration: If you’re selling and buying at the same time, you’re experiencing the current market from both sides.
- Your strategy should account for both your sale and your next purchase.
And here’s something important to remember:
The mortgage rate you close with today does not necessarily have to be the rate you keep for the life of the loan. As Eric Bernstein, president and co-founder of LendFriend Mortgage, puts it, “The rate you close with today does not necessarily have to be the rate you keep for the life of the loan.”
Of course, refinancing only makes sense if rates come down enough to justify the costs and your individual financial situation supports it, but today’s rate doesn’t necessarily define your entire homeownership journey.
While high mortgage rates are scary for many people, it creates conversation, opportunity, critical thinking, and negotiating. Talk to your trusted real estate expert (or connect with one of us!) and your mortgage broker (visit our concierge page to view our recommended mortgage brokers) to understand how these rates may affect you.