Can Raising Interest Rates Help the Housing Market?

Competition in the housing market is so intense right now that it’s nearing Black Friday levels of chaos. And if you’ve paid attention to any armchair financial quarterback, they’re saying the same thing: “If the Fed would just raise the interest rate, this would all stop.”

But how true is that?

Here’s Five Fast Facts About Interest Rates & the Housing Market

  1. ⁉️⁉️WTF (What The Fed) - The current federal interest rate is at 0.50%-1.00%. That’s super low. It was at 2.25%-2.50% in 2019. The Federal Reserve has started slowly raising it to combat inflation.
  2. 🏘️🏚️Raise the Roof - Higher interest rates will definitely raise home prices, which will start turning away buyers. But it can also lower the amount buyers qualify for, making purchases even more difficult. 
  3. ✌️☮️Truce? - Fewer people able to afford new homes means fewer people able to offer ridiculous amounts for those homes. Which means those crazy bidding wars will slow down. (But don’t expect them to disappear entirely, sorry).
  4. ⬇️🔼Balance - The plus side is that expensive home prices don’t stay expensive forever. Once fewer people are willing to buy and more homes are finally built (eat it, supply chain), the prices will eventually come back down and level off. 
  5. 🚧🏗️Homeless? - While all this data is great, it doesn’t take one other COVID problem into consideration: there aren’t enough homes to buy for the people who can and will buy them.

🔥The Bottom Line: There’s no magic or instant fix for the current housing situation, since it’s the result of many things, mostly linked directly to the pandemic. However, patience and smart spending from normal folks like us is going to go a long way toward a solution. It’s best to wait it out for at least the rest of the year.

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