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Should You Sell Your Home If Interest Rates Are Rising?

What You'll Learn: What rising rates mean for market trends and mortgage affordability


Should You Sell Your Home if Interest Rates Are Rising?

When interest rates are on the rise, it's normal to wonder whether it's a good time to sell or buy a house. While rates for houses are an important consideration, they're not the deciding factor. Here are three questions to ask - and specific steps to take - to help you decide if the time is now.

1. What's happening in the real estate market?

Let's start with a concrete example: Rates reached historic lows in 2020 and have been on the rise since the Federal Reserve made a series of rate increases in an attempt to stabilize the economy. What does that mean for the housing market and home affordability?

Let data do the talking

Headlines and office chatter don't always tell the whole story. According to RedFin's U.S. Housing Market report, in October 2022 home prices increased by 5 percent, the number of homes sold fell 29.2 percent, and the number of homes for sale rose 4.8 percent year-over-year. As a seller, you can conclude that increasing interest rates slowed the demand of buyers, but prices stayed strong during that time.

Use the market to your advantage

Such market trends typically lead to one of two scenarios: a seller's market or a buyer's market. The odds are in your favor during a seller's market, when there are more buyers than properties, sometimes leading to bidding wars and offers over your asking price. The scale tips the other direction in a buyer's market, when you'll likely have to work harder to make your listing stand out to a smaller pool of buyers that have more options. Rate increases tend to eventually lead to a buyer's market, but the result isn't immediate. Looming interest rate rises tend to push more buyers into the running before home buying is out of reach.

Factor in inflation

While rates are known to fluctuate over time, the cost of everything over time goes one way: up. You should never feel rushed into selling or buying if you aren't ready; however, it's important to remember that home prices typically continue to rise with the rate of inflation. Waiting out a lower rate doesn't always pay off.

2. Are you ready to sell?

Economic activity aside, are you truly ready to pack up your life and start a new chapter? Selling and buying are life-altering financial decisions. Consider the following to ensure you aren't rushed into a decision.

Determine your motives

Why do you want to sell, really? Is it a necessity due to a career change, a nice-to-have for a growing family, or an emotional pull from experts warning, "Sell now! Before it's too late!"? Your choices should be based on what's best for you and your family.

Run the numbers

Now for the most important question: Are you financially ready for a move, which may include a new home purchase? Estimate how much equity you have and the profit you may get from your home sale. If you'll be applying for a new mortgage, check your credit score and pay down current debs to give it a boost. Create a home buying budget including a down payment, closing costs, and other upcoming expenses. 

3. How can you make home buying more affordable?

It's no secret that homebuyers' purchase power is reduced when interest rates rise. If your plans include buying a new home, here are some ways to increase affordability in your new place.

Lean on your real estate agent

Talk to your real estate agent about various neighborhoods with characteristics similar to the ones you like best. You may find that there are plenty of options at various price points in your metropolitan area.

Consider different loan options

Talk to your lender about a variety of loan options for your home mortgage. Different loan types,  down payments, and terms can change the amount you pay significantly, both month-to-month and over the life of your loan. There may also be grants and incentives available for first-time homebuyers.

Remain flexible

Think honestly about your wish list and prioritize the items there. While you may think a big backyard is essential for entertaining, ask yourself how often you'll use it. Do you need a dedicated third bedroom for guests, or would it be more affordable to put them up at a local hotel or Airbnb?

Should I buy a house now?

Ultimately, the best time to buy or sell a house is a personal decision that shouldn't be made out of haste or fear of rising rates. If you are still building your career or if your income is highly variable or uncertain, this may not be the time for you to buy. Similarly, if you're not sure where you want to live a year or two from now, it may be better to wait. But if you're ready financially, selling and buying a home can be worthwhile strategies - no matter what the market is doing.



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After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5