Help! Interest Rates Higher: Should I Sell Now?

Help! I dragged my feet and forgot to sell my house for the oodles of money that people are paying and now I don’t know if it’s worth the trouble anymore.

The Theory

I’m getting questions about what to do now that the fed rate is higher. It’s been almost zero for two years and now it seems like a lifetime ago and an increase is a huge deal. If rates go up, then banks will increase the rate for people’s mortgages. If that happens, less people will look for new homes and house values will fall.

The Reality

To understand what will happen, you have to think about what is (or was) motivating people to buy houses. The interest rate is a part of that, but I think that is more likely to impact the size of house they buy, not the decision to buy. When they are ready, it is because their family or their job changed and the interest rate doesn’t make as much difference. They talk to their banker and find out how much money they can buy and then set their sights within that range. The rate affects which house to buy, not the decision to buy.

However, at the lowest end, people won’t be able to get a mortgage anymore because the cost is too high. Everyone is shifted a little lower and the total buyer pool decreases. CNBC says that mortgage applications have dropped 13% and much of this is due to climbing interest rates. Yet, housing values continue to climb:

As a seller, your motivations will likely be less about how much money you can get, and like buyers, more related to your personal situation. If you haven’t put your house on the market by now, it wasn’t because the house values weren’t high enough. They are through the roof and show little sign of slowing down.

Should I Sell?

That’s everybody’s question. If this is your primary residence, you will just be needing to buy another home at these huge prices. There is no reason to sell now.

If you have an investment property, I recommend to put it on the market. Remember that I said the market shows ‘little’ sign of slowing down. I didn’t say ‘no sign’. Inflation will have a bigger impact because it’ll affect people’s ability to buy nice things and that sentiment will go over into housing as well. Remember – this interest rate bump is tiny compared to where it’s been in the past.

I’m in the process of selling all my single-family houses (The freestanding houses you might live in). My last house’s closing is on Friday. I had significant gains in value over the course of the five years I held them. This will free up a lot of money to invest in the next great thing. I’m looking at office and retail right now. Good luck!

Dr. Equity