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

Published August 31st, 2018 by Unknown

With the rise in interest rates from the Federal Reserve, politicians and political pundits seem to be twisting themselves in pretzels trying to make sense of it all! Why is this a concern for you?

If you are thinking of putting your home on the market it can be disconcerting in the midst of what seems to be so much flux.

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

This reduction has greater ramifications for the luxury real estate market. The next reasonable assumption is this will lead to less money in your pocket if you wait to sell or worst yet 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?

Well, I am so glad you asked! The Federal Reserve determines the federal fund rate and closely monitors it to prevent the dreaded word INFLATION!

This rate determines the interest rates we hear about in the news. Guess what, 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 although 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 of money being available for the consumer to borrow.

What may be surprising to you is 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.

Investors are looking for a good ROI so if they don't have faith they will get a good enough return or yield they will not risk it.

This affects the average American seeking a home loan since banks do not want to hold mortgages on their books. If investors are not willing to remove this from banks this leads to banks becoming more stringent in giving out these loans to mitigate the risk for themselves.

In order to predict this yield which directly affects mortgage rates, you must look to 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 in turn lowers mortgage rates.

The graph below gives you 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! You 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 them 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 for you 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? Even with several interest rate hikes, the ten-year yield will increase minimally.

What Does This Mean For You?

Learn the tricks to have buyers vying to buy your home NOW!

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.

The bad news is no one can guarantee anything when it comes to the sale of your home. There is simply no crystal ball. Although it is not going to stop anyone from making predictions!

The good news is by doing everything you can to position your home in the best light this should be enough.

While rising interest is a valid concern perhaps you would be better served by not allowing this to be your main determinate as to whether you should sell your home or not.

Instead, focus on what exactly you are trying to accomplish by selling your home. Then find out whether your local market dynamics will aid you in reaching these goals. This will be the best strategy as to whether selling your home now or later is the best choice for you.

Besides, if there is anything that affects a homeowner's bottom line, it is pricing. Not pricing your home accordingly with the market is more fatal to your bottom line than the Federal Reserve raising interest rates.

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 approach 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

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