How do the sellers respond to Mortgage Interest Rate increase?


Higher interest rates rattle sellers, too – The Washington Post

The Nov. 26 front-page article regarding buyers’ rising stress levels because of anticipated higher interest rates neglected to consider the other side of the transaction [“For home buyers, rates of stress rise”]. While it is true that higher interest rates would increase the monthly mortgage cost for a given home value, they also would put pressure on sellers to reduce their price, mitigating somewhat the burden on buyers.

The effect of increasing interest rates is similar to an increase in the sales tax. If the sales tax were to rise from 6 percent to 7 percent, retailers would bear some of the burden of the increased tax by lowering their pre-tax sales prices. The same is true of home sellers.

Home buyers approach the market with a certain budget in mind. If interest rates rise, they may have to accept a lower-priced house than they otherwise would. Sellers would then see a reduced demand for homes, forcing them to accept lower prices.

Ultimately, both the buyer and the seller must share the burden of any increase in interest rates. Sellers will be stressed, too.


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