What Do High-Interest Rates Mean, and How Can They Impact Your Real Estate Business?

With the Federal Reserve warning of further interest rate increases in the coming months, consumer demand for property purchases might drop—impacting your real estate business. Increased residential and commercial real estate interest rates can make properties more expensive for buyers already experiencing an unprecedented cost of living crisis.

This reduced demand could force sellers to slash the prices of their homes and commercial units to attract more buyers, meaning less commission for agents. Learn the answer to the question “What do high-interest rates mean for your real estate business” below.

Rising Residential and Commercial Real Estate Interest Rates 

Interest rates are critical in the real estate business because they influence the value of residential and commercial properties—and how much buyers have to pay to borrow money to purchase one of those properties. 

Typically:

• High-interest rates make buying or selling a property more expensive
• Low-interest rates make buying or selling a property less expensive

It’s difficult to determine a ‘high’ real estate interest rate because there are so many variables at play, such as:

• The length of a property loan—a 15-year loan, 20-year loan, or 30-year loan, etc.
• The type of property loan required—VA, FHA, USDA, jumbo loans, etc.
• The purpose of the property loan—cash-out loans come with higher interest rates than other types of loans, for example.
• The buyer’s credit score—someone with a high credit score can secure a lower interest rate on a property loan than someone with an average score.
• The mortgage lender underwriting the property loan.

For the typical borrower, however, a high-interest rate for a 30-year fixed loan is anything higher than 5 percent. 

What Do High-Interest Rates Mean? 

Here’s an example of how high residential and commercial real estate interest rates can impact buyers:

• Say a buyer secures a 30-year fixed property loan with a 4 percent interest rate. The buyer’s monthly loan repayment would be $1,900.
• Say another buyer secures a 30-year fixed property loan with a 5 percent interest rate. That buyer’s monthly loan repayment would be $2,138. 

Although there’s only a 1 percent difference in the interest rates on these loans, the second buyer will pay $238 more in repayment costs every month. With the ongoing cost of living crisis, the second buyer might not keep up with their loan repayments.

It’s also worth noting that 5 percent is at the low end of the high-interest rate range. Some buyers might have to pay 6, 7, or 8 percent on a property loan. At the time of this writing, the average mortgage interest rate for a 30-year fixed-rate loan is 5.650 percent. 

What Do High-Interest Rates Mean for Real Estate Firms?

High-interest rates seem scary for buyers looking to finance residential and commercial properties. As interest rates rise, buyers might not be able to afford loan repayments and decide to invest their money elsewhere. That can negatively impact real estate firms that require a steady flow of buyers with the financial means to purchase the properties in your portfolio. You might find that fewer buyers are interested in your properties or can’t afford to finance them. Buyers might even ask your agents whether it’s an excellent time to purchase a property or if they should wait until interest rates become more affordable. 

High-interest loans also seem scary for property owners trying to sell their commercial and residential properties. A property owner might lower the price of a home or commercial unit to attract more interest from sellers. Reducing the value of a property means your real estate business will collect less commission on that property, impacting your bottom line. Lower property values can also affect the entire housing market.

How ProspectNow Can Help

With interest rates likely to rise again in the coming months, there’s never been a more critical time to generate insights about your local housing market. ProspectNow is the complete property and owner database that lets you view properties predicted to sell or refinance in the next 12 months. That can help you secure more properties for your portfolio and match these properties with buyers. With a more extensive portfolio, buyers have more options at a time when high-interest rates often make financing a property unaffordable. You could find lower-cost properties that are more attractive to buyers and increase the number of leads in your real estate pipelines. 

Prospect Now can also find contact information for any property owner and provides comprehensive coverage for 155 million properties and 18 million businesses. 

Final Word

The Federal Reserve will likely increase interest rates further in the coming months, influencing consumer demand for properties. Buyers might not have the means to finance a new home, while sellers could lower the value of their properties. Your company can navigate rising residential and commercial real estate interest rates by using the latest property and owner database data to match suitable properties with buyers.

With ProspectNow, every property in America is at your fingertips. Start your free trial now!