The Federal Reserve recently raised the prime interest rate, but that’s not the end of it. We can expect a total of four rate hikes in the next 12 to 18 months. So, what does this mean for your clients?

If you are currently working with clients who are on the fence about buying or listing a property, the rate increase could be a great motivator. Here are five facts about interest rate increases that may inspire clients to jump into the market.

1. Waiting a few months to buy may result in waiting a few years to own

In the short term, a small rate hike affects many buyers on the bubble from qualifying for a mortgage. Some of these buyers have such a tight debt-to-income (DTI) ratio for mortgage qualification that $50 can set their DTI ratio into a non-qualifying status.

That means a quarter percent increase can result in losing financing on a purchase. The client will then need to rely on salary increases or reduction of debt before they qualify for a home purchase.

2. Concentrate on resale homes or quick move-in construction

Many millennials and first time homebuyers are attracted to the new construction. Who wouldn’t want to pick their home style, colors and finishes for close to the same price as a resale? And because many of the national builders require little money down and can offer FHA, VA and USDA for new builds, they become even more attractive.

But because a buyer cannot lock into an interest rate until 60 days before the home is ready to close, ground up construction may not be a good option for buyers on the bubble. If we have another rate increase before construction reaches the 60-day-to-close period, your client may no longer qualify for the home.

3. Sellers who wait to list might wait to sell

We are currently in a seller’s market. The inventory is extremely low, appreciation is high, and there are more active buyers resulting in multiple-offer situations. But with every rate increase, the balance begins to correct. It is considered a balanced market when there is about three to six months of inventory on the market.

A balanced market, or a tip to a buyer’s market, will increase the amount of time a home is on the market. With each month a home is on market, further expenses are incurred by the owner.

4. Buying down an interest rate might be a good idea

If a rate increase knocks a client out of qualification on their DTI, or if a payment is outside of a buyer’s comfort zone, buying points may be a good option.

When interest rates were at 4 percent or below, it wasn’t always worth it. But with interest rates now close to 5 percent (and predicted to reach 6 percent by the end of 2019), buying points are making more sense. Plus, you can use creative financing, such as asking the seller to pay the point to minimize the out-of-pocket punch of the buydown.

5. House appreciation will slow as the market corrects itself

Most areas have recovered or exceeded pre-recession values. Sellers who are waiting and relying on appreciation calculators may lose.

Current appreciation is between 4 percent and 6 percent per year. However, some analysts are predicting future appreciation could be as little as 2 percent.

If that’s true, sellers may be in a lose-lose situation. For every quarter percent the interest rate goes up, they lose potential buyers, and when combined with declined appreciation, they may yield less return on the sale.

It’s important to remind our clients (and ourselves) that we’ve seen uncommonly low interest rates in the past few years, and with a market correction, we will be back to the (then pre-recession low) interest rates of 6 percent. It wasn’t that long ago that 6 percent was an unheard of low rate.

Missy Yost is a Realtor with Weichert Realtors Coastal Properties in Hilton Head, South Carolina. Follow The Yost Group on Facebook or Twitter.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription