Most people have a negative, knee-jerk reaction to the phrase “high interest rates.” However, rising interest rates in the U.S. aren’t indicative of some deeper problem. They are more often indicative of a healthy, growing economy that’s heading in the right direction.
Those subsisting on a fixed income will benefit from a higher interest rate on their savings accounts. Rates may only increase by a small margin, but it’s not insubstantial. More than that, banks may show a greater willingness to lend — a trend that will ultimately contribute to the booming U.S. economy.
In addition to the prolonged positive effect on the stock market, higher interest rates will strengthen the value of the dollar. It’s a strong possibility that hikes could increase the buying power of U.S. currency to contend with the franc, euro and yen. This would be a tremendous boon to America.
How do rising interest rates affect real estate, though?
Interest Rates and Real Estate
It’s a critical question for those with an investment in property. Again, the knee-jerk reaction is a negative one, but reasonable to a degree. Rising interest rates often serve to increase mortgage rates, adding to monthly payments that young homeowners might have difficulty budgeting for.
However, for men and women operating in real estate, higher interest rates promise several secondary benefits. To begin with, people interested in buying a home but are hesitant to make that decision will see rising rates and feel a greater pressure to act.
This decisiveness has other effects. When more people purchase homes, there’s an increase in demand. This results in a rise in prices and home equity, allowing for easier resale and a more fluid market. Initially, rising interest rates are favorable for the real estate market.
What This Means for You
Worry caused by the rise in interest rates is misplaced. Like anything, it will have its advantages and disadvantages. The current economic and political trends are not something to fear, but something to anticipate and potentially profit from — given the right preparation.
Homeowners who may be hit by a higher mortgage due to rising interest rates can plan ahead for managing these extra costs. Future market shifts may allow homeowners who buy in this period to refinance their mortgage to reduce the term for a lower interest rate. Working to reduce homeowner’s insurance rates can also take $30 to $50 off an average monthly mortgage payment. Younger homebuyers are getting antsy, but smart financial planning can ride out a market shift.
The housing boom that the U.S. has enjoyed for the past several years won’t last forever. However, rising interest rates don’t pose a significant threat to the industry at this time, and the market remains stable.
In short, feel free to relax.
• Holly Welles is a real estate writer with an interest in financial success. You can subscribe to her own blog, The Estate Update, for new tips on managing real estate and home improvement.
