Don't Worry Be Happy: Selling Your Home During Rising Interest Rates


With the rise in interest rates from the Federal Reserve, politicians and pundits seem to be twisting themselves in pretzels trying to make sense of it all! One can understand why this might be of concern to you. This becomes even more disconcerting if you are thinking of putting your home on the market in the midst of what seems to be so much flux.

Besides, the first thought is: if federal rates are increasing doesn’t that mean mortgage rates will as well? The effect of this is a reduction in the number of buyers who will be available to buy your home.

This reduction has greater ramifications for the luxury real estate market. Some might assume this leads to less money in their pocket if they wait to sell or worst not being able to sell at all. Fortunately, this is not necessarily the case.

Rising Interest Rates Do Not A Mortgage Rate Make

Rising interest rates is just one formula in determining how the real estate market will be affected. Hikes in interest rates do not automatically equate to hikes in mortgage rates. Why?

The Federal Reserve determines the federal fund rate which is indicative of the rate we normally associate interest rates with. This interest rate pinpoints the rate at which banks lend to each other, not to us.

A federal mandate requires banks to keep a certain amount of deposits in reserve. These reserves do nothing for the bottom line of the bank because banks make money by lending it to others. If there is a surplus of deposits available to banks and the federal fund rate is low it will encourage banks to lend to each other. This lending increases the likelihood that money will be available for the consumer to borrow.

The federal fund rate does not have a strong influence on what happens in the secondary market where most mortgages are sent and sold. In the secondary market, investors seek to make a high yield by buying mortgages. If investors don't have faith that they will get a good enough return or yield on their investment then they will not risk it

This will affect the average American asking for a loan for a home since banks do not want to hold mortgages on their book. If investors are not willing to remove mortgages for them this leads to banks being more stringent in giving out loans to mitigate the risk for themselves.

In order to better predict this yield, we must look at the ten-year yield. This is the return investors can expect to receive when they invest in treasury bonds. The higher the yield investors receive the more likely they are to invest in them which directly lowers mortgage rates.

The graph below gives a visual demonstration of how rising interest rate do not automatically correlate with rising mortgage rates.


The blue denotes the ten-year yield and the red is the federal fund rates.

There are a couple of things that can be deduced from this graph:

• The ten-year yield does not fluctuate at the same rate the federal fund rate does. This is great! Homeowners can rest easy knowing your buyer pool will not dwindle with a rise in interest rates.

• The ten-year yield rate and the federal fund rate have a large enough gap between the them that even if the federal fund rate increased it would not automatically cause an increase in the ten-year yield rate. This is more good news since mortgage rates will show little fluctuation if at all.

Here is a closeup:


• You can see in 2008 when the ten-year yield should have spiked to maintain the gap that exists between the two it did not. In fact, it remained in line with federal fund rate during the infamous 2008 crash!
• Take note the gap went back in 2009. Notice it remained as such until now. Meaning? We can have several interest rates hikes and it will have the very little effect on the ten-year yield!

What Does It Mean For You?


Rising mortgage rates will definitely affect your bottom line when you get ready to put your home on the market especially in the luxury market where the pool of buyers is smaller.

However, the reality is no one can guarantee anything when it comes to the sale of your home. There is just no crystal ball. Although it is not going to stop anyone from making predictions! What you can do is everything in your power to position your home in the best light and this is enough.

Why not shift your attention from interest rates and how they will affect your bottom line. Instead, focus on the reasons why you want to sell. If your local market is not conducive to get you what you want then perhaps it is best to wait.

On the other hand, are you being truly honest with yourself in regards to pricing? Besides if there is anything that affects a homeowner's bottom line it is pricing. Want to know if your pricing is in line with your goals? Then why not take some time to read this.

In closing, rising interest rates should not be the sole factor when it comes to the sale of your home. Your local market, having a well-versed professional, and interpreting the right data is the best strategy to get a premium price for your home.

Financial Samurai. "Should I Buy A Home In A Rising Interest Rate Environment? Explaining The Fed Funds Rate" retrieved from