Most buyers will have to secure a mortgage to buy real estate. Part of the mortgage process is securing a good interest rate because the interest will add to the overall cost of the purchase.
The Federal Reserve sets interest rates and will adjust them according to the economy. These changes can heavily impact the real estate market. When interest rates are high, fewer people will be able to buy.
Drops buying ability
High interest rates lower buying power. Lenders will only approve buyers for so much money. The total approved loan includes interest. So, if a buyer has to pay more out in interest, it leaves less money left to actually make a purchase.
For this reason, when interest rates are exceptionally high, it will push a large pool of buyers out of the pool. These people simply cannot afford to buy a home. So, you lose potential sales.
Increases financial struggle
Higher interest rates also mean those who do get approved for a mortgage will pay more for the home every month. Because they are having to get a larger loan to buy a home, the monthly payment goes up. For some buyers, this will be too much of a strain. So, while they may get approval from the bank to buy, they cannot make it work in their budget. Again, you lose out on a pool of buyers.
The bottom line is that rising interest rates are bad for everyone. You may have a harder time finding a buyer. You may even have to drop your price to entice those buyers who are still able to secure a mortgage.
