How Rising Interest Rates Affect Home Prices—And What That Means for You

The real estate market is always evolving, and rising interest rates are one of the biggest factors shaping home affordability today. If you’re considering buying or selling a home, you might be wondering:

• Will rising interest rates make homes unaffordable?
• Will home prices drop?
• Should I buy now or wait?

The answers depend on a few key factors, including buyer demand, inventory levels, and market trends. Let’s break it all down so you can make the smartest decision for your future.

Why Higher Interest Rates Impact Home Affordability

Mortgage interest rates directly affect monthly payments. When rates increase, homebuyers either pay more for the same home or lower their price range to maintain affordability. This means fewer people can afford to buy, which could slow down buyer activity.

But does that mean home prices will drop? Not necessarily.

How Interest Rates Affect Home Prices

One of the biggest factors influencing home prices is months of inventory—the number of months it would take for all the current homes on the market to sell at the current pace, assuming no new listings.

• A neutral market (where home values typically appreciate 3-4% per year) has 5-6 months of inventory.
• A buyer’s market (where home values may decrease) occurs when inventory exceeds 11.5 months—a level we last saw in 2008.
• Right now, we’re at just 2 months of inventory, meaning we are still in a seller’s market, with home values continuing to appreciate.

Even if buyer activity slows due to rising interest rates, inventory would need to more than double for us to reach a neutral market—and quadruple before home prices would actually decline. That’s highly unlikely in the current market conditions.

What This Means for Buyers

If you’re thinking about buying, waiting could cost you. Experts predict home values will increase by 5-10% in 2025.

💡 Example: If a home costs $600,000 today, a 10% increase means you’d pay $660,000 next year—a $60,000 difference.

If that changes what you can afford, consider this: The homes priced at $600,000 today will be out of reach next year, and you may need to settle for a home currently priced at $540,000.

Instead of waiting, you can buy now, lock in your price, and refinance later when interest rates go down—a strategy that could save you thousands in the long run.

What This Means for Sellers

If you’re a homeowner thinking about selling, low inventory is working in your favor. Fewer homes on the market means less competition and stronger home values, making this a great time to sell.

Additionally, many homeowners are sitting on more equity than ever before. That equity isn’t doing anything for you while it sits in your home, but selling now allows you to:

• Use your equity as a large down payment on a new home, reducing your monthly payment.
• Invest your equity in opportunities that generate income.
• Take advantage of buyer demand while inventory remains low.

Exclusive 4% Interest Rate Opportunity

We understand the concerns about rising rates, which is why we have access to special promotions offering 4% interest rates!

🏡 Curious about your home’s value? Use our home value tool to see what your home is worth today!

The Bottom Line

• Home values are expected to rise, not fall, due to continued low inventory.
• Waiting to buy could mean paying thousands more for the same home next year.
• Selling now means taking advantage of low inventory and strong demand.
• You can always refinance later, but you can’t lock in today’s home prices forever.

💬 Thinking about buying or selling? Let’s talk! Contact us today to explore your options and find the best strategy for you.