When mortgage interest rates increase, a mortgage for a particular value costs homebuyers more. For example, person A might have taken out a 30-year fixed-rate mortgage of $300,000 with an interest rate of 2.5%, meaning they faced monthly payments of $1,449.
As mortgages become more expensive, it becomes less appealing to take one out in the first place, as we’ve seen already. This situation is a stark contrast to what home buyers faced in the US a year ago.
The effect of the rise in the federal funds rate on demand is two-pronged. On the one hand, the higher mortgage prices are likely to reduce demand for houses directly — but also, rising inflation has increased the cost of living, meaning there’s a lower number of people who can afford a home right now.
People have been talking about the “uncertainty of current times” over the past few years. For a while, it was the pandemic, and then rising inflation and geopolitical tensions came along to cause even more uncertainty.
Buying a property for investment purposes in the US may not seem like such a good idea, thanks to recent changes. Whereas owning a second home was beneficial for tax breaks in the past, this is no longer the case.