Real estate is one of the world's most unpredictable and volatile markets. It depends on various factors, from interest rates to political climate and economic growth. In Hickory, North Carolina, all eyes are on rising interest rates as a potential cause for concern.

If you're a homeowner or investor in Hickory, you probably wonder what will happen if interest rates continue to rise. Rising interest rates have the potential to cause some problems for homeowners. But if you stay informed about the current trends in your area, you can avoid making any costly mistakes.

This post will tell you how rising interest rates affect real estate markets and what they mean for Hickory homeowners and investors.

The average national mortgage interest rate has been on the rise for the last few years and is expected to continue rising through 2022. The cause of increasing rates is simple. The Federal Reserve has begun to raise interest rates to combat inflation.

Inflation is always a concern when it comes to loans and mortgages, mainly because most people take out their loans with fixed interest rates that do not change as inflation rises. If prices of goods increase faster than expected, lenders could lose money.

The Fed mitigates this situation by raising its benchmark for mortgage interest rates, which will help keep inflation under control while still allowing economic growth so people can have jobs and afford housing loans.

Higher interest rates also make borrowing more expensive for consumers and businesses. Those unable or choose not to afford the higher payments delay undertakings that require financing, like buying a house. The effect of this is twofold. First, this encourages people to save more to afford the loans and reduces the supply of money in circulation, effectively lowering inflation and cooling off the economy. 

Mortgage interest rates are a major factor in determining home prices, but they fluctuate over time. Interest rate hikes are a double-edged sword for the housing market. They can be a boon for homeowners who have locked in their mortgage at a historically low rate, but they can also cause challenges for those looking to purchase or refinance their homes in the current market.

For example, a family shopping around for a $250,000 30-year, fixed-rate home loan. At a 3.5% interest rate, the total cost over the life of the loan would be approximately $404,000, with interest equaling $154,000 of the total payoff amount. Monthly payments would be around $1,122. If interest rates rose just one percentage point to 4.5%, the total lifetime cost of the loan would be roughly $456,000. $206,000 of that total would be pure interest, and monthly payments would come to be $1,260.

Though this is an overly simplified example, it shows that just one point can drastically affect the loan's lifetime cost.

Several experts predict the effects of rising interest rates will be most pronounced among buyers who have been forced to make more financial sacrifices in order to afford a home.

Besides higher mortgage payments, buyers may also qualify for lower loan amounts due to higher rates and find it challenging to find a property in their price range.

Since buyers are often first-time homeowners or relatively new buyers, they tend to be more sensitive to changes in the mortgage interest rate. They may not have as much experience with how much of a difference an increase can make and how it can significantly impact the financial stability of the property. 

Rising mortgage rates also affect sellers. With fewer buyers willing or able to purchase homes, demand decreases, and sellers may experience lower engagement from their listings. Days on the market will rise, and in response, sellers may decide to lower the price of their property to garner offers.

If a seller accepts an offer, the issue may not stop there. Finding a new home may prove challenging as well. Sellers will have to borrow at higher interest rates making properties more expensive and harder to locate. 

Homeowners are affected differently by rising interest rates, depending on their mortgage type. Those with fixed-rate loans are in a sweet spot. Soaring mortgage rates will not increase monthly payments.

Homeowners with adjustable-rate mortgage (ARM) loans may see a rise in their original interest rates. However, the amount depends on the caps detailed in the loan contract and the difference between the mortgage’s current rate and the current market rates.

Lastly, when rates rise, so does the cost of refinancing. Homeowners who were previously able to refinance at a lower rate had their monthly payments reduced. However, this may not be the case for the current market. A new rate may cost more than what they currently pay each month. 

The Hickory real estate market is not immune to the consequences of rising interest rates discussed earlier. However, each market is different. Hickory's median sold price is $245,000, a 7.8 percent increase from last year. Although home prices have risen over the past year due to inflation, more homes are being sold on a monthly average. However, out of the 54 homes sold in September 2022, 28 were sold under the asking price. As interest rates rise, buyer spending power decreases, encouraging otherwise interested prospects to delay making offers on homes.

The data suggest that Hickory home sellers face pressure to lower their asking price in response to fewer bids. However, most homes in Hickory are sold in under 30 days meaning the demand remains prevalent. It seems rising interest rates have not deterred home transactions in Hickory. However, sellers should carefully consider their listing price and seasonality. Regardless, a healthy market with strong demand and a supply to meet it can sustain itself during interest rate hikes.

As you can see, the real estate market in Hickory is poised to continue growing. Interest rates are rising, but they're not yet at a level that will cause a significant decline in the number of buyers and sellers in the area. And if you're looking for new homes in Hickory or a Hickory realtor, contact Joan Everett today!