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How To Price Your Home In A Rising Rate Environment

Kevin Graham5-minute read
UPDATED: November 08, 2022

For much of the past decade, mortgage rates have been near rock-bottom levels. We found ourselves there again after the COVID-19 pandemic took hold as the Federal Reserve slashed the federal funds rate to near zero in order to stimulate the economy. Consumer interest rates, including those associated with mortgages, followed suit.

Over this period, sellers have enjoyed home values that rose at a rapid pace, supported in large part by mortgage rates near historic lows that made it relatively cheap to borrow increasing amounts of money for homes. The question, then, is how do you price your home as mortgage rates rise?

Selling your home?

Work with a real estate agent who knows your local market.

What’s Happening With Mortgage Rates?

A large part of U.S. economic growth comes from housing each year. With that in mind, the Federal Reserve slashed the federal funds rate as low as it could go during the pandemic with the idea that making borrowing cheaper encourages consumers to spend money and stimulates the economy in a time of crisis.

The main problem with this is that if you keep rates too low or do so for too long, it tends to lead to higher levels of inflation. The inflation that we’re dealing with right now may be partially due to lower rates, but it’s also being heavily driven by problems in the supply chain that mean higher prices for those goods that are available.

Nevertheless, the one thing the Federal Reserve can control is the federal funds rate, recently increasing it for the first time since the beginning of the pandemic in order to try to get a handle on inflation. Given the Federal Reserve’s projections, we’re looking at six more rate increases before the end of 2022.

Although mortgage rates don’t directly correlate with the federal funds rate, over time they tend to follow the same general direction. As the federal funds rate rises, mortgage rates usually go up as well.

As mentioned before, housing occupies a special place of prominence within the U.S. economy. Slashing the federal funds rate help to lower all interest rates, not just those for mortgages. However, the Federal Reserve did something special when it comes to the housing market.

Pulling from the playbook of the last recession, the Federal Reserve was until recently buying large quantities of mortgage bonds on a monthly basis. To this day, the Fed has $2.7 trillion worth of mortgage-backed securities (MBS) on its balance sheet. This made it the largest buyer and holder of the bonds underlying mortgage rates by a wide margin.

When you’ve got a guaranteed buyer, the rate of return for a bond or any other investment vehicle doesn’t need to be as high. Because the Fed was buying in such a high quantity, mortgage rates were held artificially low.

The Fed has previously announced plans to stop buying mortgage bonds and begin to sell their current holdings back into the market, with the idea that they would be able to start again in the event of a future recession. As they do that, rates are likely to rise further because other investors will require a higher rate to be enticed to buy the bond.

Between these two events, rates are assumed to be going up for a while. With that in mind, how should sellers react to this?

Neighborhood trends at your fingertips.

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How To Price Your Home Amidst Rising Rates

First, let’s start with a bit of good news. Home buyers are less rate sensitive than those looking to refinance. Sometimes life events like a new baby or a job in a different part of town force people to move no matter the interest rate environment.

The interest rate doesn’t matter nearly as much as the monthly payment, and that can be controlled somewhat by taking a longer term. However, there comes a point where affordability becomes difficult, particularly if a buyer must maintain a certain payment to qualify. Funds aren’t unlimited, after all. The challenge for a seller becomes knowing when the price is too high. Here are some tips.

Do Your Research

In pricing your home, you want to pick a number that’s in line with sales of comparable properties in your area. Comparables are properties like your own that have recently sold. To be most accurate, the more similar and more recent, the better.

As a simple example, three-bedroom ranches should be compared against other nearby three-bedroom ranches. If yours has granite countertops and an inground pool, if you can find a sale that has all those items, so much the better.

Rocket HomesSM has a tool that allows you to get an estimate of how much your home is worth. This is based on recent sales in your area. However, that page can also give you a ton more information.

You can see whether it’s been a buyer’s or seller’s market recently. Additionally, you can get insight into how much time properties like yours are spending on the market. If you find that your home has been on the market much longer than other properties like yours, it’s a sign you need to reevaluate your strategy, including your price.

Rely On Your Real Estate Agent

A good real estate agent is always a huge plus when you’re negotiating, but this is even more important when market conditions are rapidly changing. You don’t sell houses every day. The average person only does it once every 8 years.

Agents are selling homes as a profession. They know the market conditions in your area and they can smell changes before the media you read even catch a whiff.

They’ll also be able to help you with a comparative market analysis. This considers everything an online estimate would, but your agent is also most familiar with the details of your property, so they’ll be able to give you an even more tailored experience.

They’ll also be able to help you negotiate. There are certain things buyers and sellers pay for in the transaction. For example, historically, sellers have covered the 6% commission that’s split between the buyer’s agent and the listing agent.

Recently, it’s been such a seller’s market that this isn’t always a given. However, an agent is in the best position to tell you when and if those conditions are flipping so you can act accordingly.

Another thing to remember in any market is that the type of offer you take and what you’re willing to accept is dependent on your goals and needs. If you need to sell quickly, you’re going to be a lot less picky than if you have time to sit and let the offers roll in.

If you’re looking for a good real estate agent who will understand both your area and your needs, we would love to have you work with one of our Verified Partner Agents. They’ll be able to help you price your home right. If people see a home that’s priced right, it has the potential to start a bidding war given the value.

The Bottom Line

You’ll notice that none of the tips we just shared are particularly earth-shattering. In fact, it’s a good idea to do these things in any real estate transaction. However, many areas of the country have been experiencing a seller’s market for so long that maybe you could get away with a few things because money was cheap and homes scarce.

On the other hand, when you encounter changes in the market like you get when interest rates go up, it’s never a bad idea to cross your t’s and dot your i’s.

Are you getting ready to sell your home? A Rocket Homes Verified Partner Agent can help.

Selling your home?

Work with a real estate agent who knows your local market.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.