The Rise of Mortgage Rates

During the pandemic, the housing market has been absolutely blooming. One factor initiating the real estate boom is the lowering of interest rates. As this can be a somewhat confusing process, let's unpack what is happening in the current market for the last year.

Interest rates are created by the federal reserve, the governing body of the american banks. The interest rate standard set by the Fed is affected by the US and Global economies. The interest rate for a buyer is then set by a mortgage lender, who will determine your personal loan interest through factors such as your credit score and other ‘risk factors.’ One factor that has been increasingly prevalent in the real estate boom has been historically low interest rates given by the Fed as a result of the Covid-19 pandemic. The goal of decreasing interest rates was to stimulate the economy through real estate, which was very successful, generating a high % increase in the revenue of the US Housing Market in 2020.

As interest rates are lower, buyers have the ability to take out higher mortgages without increasing their payments, as their mortgage loans will incur less interest. This makes it a great time to sell, particularly with the market as it is. Demand is high due to low rates (greater purchase power), Supply is relatively low (more homes have been purchased in 2020) which means prices are higher. With prices being higher, sellers can cash in on their home investment to buyers who can afford higher prices.

The issue the real estate world is currently facing is as follows: interest rates are being increased by the fed as the economy slowly creeps back to normal. This means that purchasing power has somewhat decreased. Nonetheless, due to the high volume of continued demand, many speculators of the real estate market are estimating a continued higher than normal amount of sales as interest rates remain relatively low compared to pre pandemic rates.