Do rising interest rates really mean doom and gloom for the housing market?

The state of the housing market isn't as bleak as the media has recently portrayed it. Kyra McKinley reports.

There are a myriad of headlines calling for the demise of the real estate market. This is sending some buyers and sellers into confusion, but what is really going on in the market right now? Will buyers, sellers, and even renters all be affected by this switch in the market?

A major concern with the housing market currently lies in rising interest rates. In the past three months, the interest rate has increased by about 3% and now is almost 8%, according to the site Bankrate. As a result of this along with other factors, housing sales have dropped 15.8% in the last year as of September 2023, according to Redfin.

This may seem daunting, but the owner of Douglas County Real Estate, Bradon Lee doesn’t think things aren’t actually as bleak as they may seem.

“ Honestly, it is a good time to buy or sell it just depends on how you look at it,” Lee said.

When it comes to buying a hosue Lee explained that there are many things that buyers can do now that they couldn’t do a couple of years ago in the post-pandemic housing market. Now buyers have more of an opportunity to negotiate prices, and they don’t have to wave certain wants or do cash appraisals anymore. Additionally, Lee explained that the state of the market right now should even be seen as an opportunity for investment by buyers.

“There's advantages to be taken in every kind of market,” Lee said. “ I think the perspective the buyer has to have is, buy a house that you want to stay in for the next couple of years and the payment may be uncomfortable but as long as it's doable then the rates will start to turn to the better side and you can refinance.”

On the seller's side of the market, Lee hasn’t seen a huge impact, but he has found that there are some things that sellers now have to consider that they previously didn’t. Since potential buyers would have to pay a high amount in their monthly mortgage due to the rising interest rates, this could impact their ability to buy a house that has problems they would need to fix, which could derail them from making a purchase.

“Often what I do to help put my sellers in the buyer's mindset is, I’ll run a payment on their house for a first-time homeowner and I'll say, ‘Ok would you pay $5,000 a month for your house?’ And they’ll look at me like I’m crazy and I'll say, 'The buyers looking at your home are going to pay that so what can we do to make your home look like a $5,000,” Lee said.

When sellers are getting ready to put their house on the market, ideally they should have a budget for repair costs. This includes areas that they may not initially think of such as repairing their roof.

Owner of Celtic Roofing, Eian McKinely says that this is one of the most important things homeowners should consider for listing their house.

“Your house has to be in perfect condition for it to sell in this market because of the interest rates. While it's important to have a good interior, you don't have a great house if you don’t have a good roof, so it's something to consider,” Eian said. “Roofing prices have increased due to rising interest rates and demand. Here in Colorado for example we’ve seen a lot of hail so the demand for the product has made the price for this service increase. Replacing a roof is an expensive line item to any potential buyer, so it's a good thing to take care of.”

While sellers will have to keep on top of their house maintenance more than they would have had to even a year ago, this doesn’t mean they have a total disadvantage. According to Lee, this is still a seller's market and they will still be able to sell their houses at good rates.

Apart from buying and selling houses, some people may choose to rent during a time of uncertainty in the market to pay less in housing costs. While it is still true that it is cheaper to rent than buy, rentals are being affected by rising interest rates as well, according to the site Manage Casa. With that certain groups of renters will be affected by these interest rates.

Colorado State University student Nicole Taylor has seen the troubles of these rising rates. Recently, she has had to choose between being able to afford medication or housing. Luckily she was able to live with a relative while she paid for her medications this semester, but she found that many others are suffering from this increase in rental rate.

“I have co-workers who are barely making rent. Most of us don’t have the time to work full time and be in school so this makes it somewhat impossible to pay these increasing rental rates,” Taylor said.

Those under 30 make up almost 50 percent of renters in the United States, according to Statistica. Many of those young people are in school or are young professionals. As previously stated by Lee, these rates greatly affect those who are already on a tight budget.

Renters will now have to watch the rental market for their local area and potentially change their living arrangements to meet their personal financial needs. For sellers, they will have to keep their properties in good condition and buyers will need to keep in mind having a proper budget for the newly raised mortgage rates.

Overall, the market isn't in complete doom or gloom; it is merely shifting from where it previously was. Being aware of the results of this shift can still allow those who rent, buy, or sell to have a successful experience.