6 Benefits Of Higher Interest Rates You Should Know

Benefit # 1 | Higher Interest savings in higher interest rate environment

If you are a saver and looking to buy a home in the future, you will be pleased to see the rates at which the bank pays you to save will be going up. As the central bank led by Jerome Powell increase the short-term rates, banks will then increase the rates they pay consumers on interest-bearing accounts.

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Benefit # 2 | Fewer bidding wars in higher interest rates environment

With the rise in interest rates undoubtedly there will be home buyers excluded from the market because they can no longer afford the monthly payments at higher rates. I think initially we may see a surge of buyers reengage in the market that previously took a break from home hunting. But if and when rates continue to climb fewer multiple offer situations may occur because fewer buyers can afford to even bid on them.

With San Antonio’s housing market in mind here on this point. I think we have a long way to go as inventory is so very low but anything can happen.

Benefit # 3 | Home price appreciation may slow in a higher interest rate environment

With a slower appreciation rate, first-time homebuyers may have more time to put themselves in a position to own a home. In a slower appreciation environment, buyers have more time to save, switch jobs, improve credit and make a wiser decision about where to buy.

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Benefit # 4 | More lending options and attention to purchase business from lenders

During this most recent decline in interest rates, I noticed banks removing many of the lending options they had offered in the past. Some of this may have been due to other factors such as the pandemic or uncertainty of the financial impact Covid-19 would have on borrowers.

But my observation is that the refinance business was smothering out the need for other product offerings. Refinance business is typically an easier deal for lenders to do since there is not a bunch of negotiating going on like there is in a sale.

Sales go bad and get delayed. But a refinance loan is almost a guaranteed payday for lenders so they’d be crazy not to pursue them.

Another part of the issue is the appraisers. Appraisers are typically necessary for both refinance and purchase transactions. When refinancing business spikes the workload appraisers have to deal with goes up and delays increase as appraisers struggle to catch up.

Benefit # 5 | More home sellers may bring inventory into the market

As interest rates start to climb one benefit that may come to light is additional inventory from sellers that are looking to make a subsequent purchase at reasonable rates. This is good news for other home buyers as homeowners have been holding onto their homes for longer periods on average.

I’m not expecting so much local inventory from this that it brings the market into balance but I certainly think it may be noticeable.

Benefit # 6 | More deals for home investors

Finally the last benefit on my list today goes to home investors. Home investors like any other home buyer have a lot of competition to worry about and typically are faced with paying higher premiums for homes as retail buyers flood the market.

As retail buyers are reigned due to higher rates home investors tend to get better deals on purchases.

Bottom Line

Rate changes are inevitable. We have seen some of the most historically low rates in our time. Unfortunately for many that time may be over. I wish I could predict when or if we will see those rates again. But for the time being, we have to adjust to the new direction rates are going in at least for now.

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Best Wishes

Krishna Perkins