Is It a Good Idea To Sell Your House When Interest Rates Are High?
It’s no secret that the housing market has been particularly tricky lately. A convergence of factors, including soaring rates, high prices and lack of inventory, partly due to the “lock-in” effect — homeowners who would rather stay put due to the low mortgages they secured a few years ago — have made the situation difficult for both homeowners and buyers.
As of April 18, the 30-year fixed-rate mortgage surpassed 7% for the first time this year, jumping to 7.10% from 6.88% the previous week. To put this in perspective, the 30-year fixed-rate mortgage was at 5.11% on April 21, 2022, and at 2.97% on April 22, 2021, according to Freddie Mac data.
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Against this backdrop, it might seem counterintuitive to sell a home in this market, yet some experts argue that even with the high-rate environment there are instances where it can make sense.
“Most folks sell their homes because of life circumstances, not due to the conditions in the housing market,” said Realtor.com executive news editor Clare Trapasso. “Some folks are expanding their families or moving for new jobs. Others are downsizing as grown children move out and they get older. Those things happen despite high mortgage interest rates.”
Also see signs it is time to sell your home.
The Market Is Not as Competitive
According to Trapasso, the housing market isn’t as competitive as it was at the height of the pandemic, when rates were at record lows. But it’s still competitive.
“There are more buyers than there are homes for sale, and that housing shortage gives sellers an advantage,” she said.
For instance, she noted that in many markets, move-in-ready homes in desirable areas that are priced right are still receiving multiple offers and some are selling for more than the asking price.
“It’s often the less desirable homes and fixer-uppers that aren’t selling as quickly,” she added.
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It Can Make Sense If You Are Moving to a Cheaper Location
Many homeowners who have lived in their properties for a long time own their homes outright and these also may have increased greatly in value over that period, Trapasso said.
“So when they sell their homes, they’re looking at pocketing a steep profit,” she said. “And if they plan to buy new homes, they may not have to worry about getting a mortgage and those higher rates because they can use the cash from their sale to fund the next purchase.”
For example, she said, sellers in California may be able to sell their homes and then buy a cheaper home in Florida and, in turn, they can then put that extra cash they made on the sale of their properties into their nest eggs.
“Even sellers who can’t fund the whole purchase of their new home may be able to contribute a substantial down payment,” she said. “This lessens the size of their loan. And that might make their monthly payments more manageable.”
It Can Make Sense If You’re Downsizing
If you’re downsizing or moving, high rates matter less, offering opportunities amid a booming market, according to Jason Lee Villarreal of Martha Turner Sotheby’s International Realty.
“However, it’s crucial to consider the full cost-of-living adjustment,” he added.
Jason Sorens, senior economist at American Institute for Economic Research, echoed the sentiment, noting that even with the higher interest rate your new mortgage could be lower than it is now.
“Eventually you might be able to refinance the new loan at a lower rate,” he said.
You can pay cash or put a lot of money down on your new home.
“In those cases,” he said, “interest doesn’t matter much, so neither does the interest rate.”
If You Have a High-Interest Mortgage
If you purchased your home when interest rates were high and have a high-interest mortgage, selling your home during a time of high interest rates could allow you to pay off your mortgage and potentially save on interest payments, according to Michael Collins, CFA, founder and CEO of WinCap Financial.
“You could then downsize to a more affordable home or rent until interest rates decrease,” he added.
If You Have Paid Down a Large Portion of Your Mortgage
Homeowners who have significantly paid down their mortgages or witnessed their property values increase due to local market trends stand in a particularly advantageous position, some experts say.
“Choosing to sell during a high-interest period might unlock considerable financial gains,” said Matt Dunbar, SVP of the Southeast region at Churchill Mortgage.
In turn, this equity can serve as a substantial nest egg, whether it’s used to downsize to a more affordable living situation, relocate to a lower-cost area or diversify investments, he added.
“Particularly for those contemplating a lifestyle change or nearing retirement,” he said, “the timing could align well with broader financial strategies.”
Can Selling in a High-Interest-Rate Environment Be Detrimental?
As Dunbar noted, the decision to sell under these conditions is not without its challenges.
For one, the pool of potential buyers might shrink as some are deterred by the high borrowing costs, potentially leading to longer listing times or the need to adjust expectations regarding the sale price, he said.
“Moreover, if the intention is to purchase another property immediately, the same high interest rates will apply, possibly diluting the financial benefits of the sale.”
Selling your home in a high-interest-rate environment could be detrimental to finances if you’ve been in your home for only a few years and don’t have enough equity built up, Trapasso said.
“The same goes for someone who lives in a market where prices have come down,” she said. “You don’t want to sell a home if you owe more than your home is worth or if you’ll wind up having a loss when all of the fees and charges are tallied up, if you can help it.”
Ultimately, as Dunbar said, the decision to sell a house amid high interest rates requires a delicate balance between understanding market conditions, personal financial health and future objectives.
“It’s a calculated risk that, with careful planning and consideration, could lead to substantial rewards,” he said, “marking the beginning of a new chapter or the realization of long-held aspirations.”
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This article originally appeared on GOBankingRates.com: Is It a Good Idea To Sell Your House When Interest Rates Are High?
