Home Sellers May Face Tougher Market After Fed Raises Interest Rates

The housing market could become more favorable to buyers in the months ahead after the Federal Reserve raised interest rates for the first time since July 2023, according to real estate experts.

According to FOX Business, Federal Reserve policymakers unanimously agreed on Wednesday to increase the target range for the federal funds rate from 3.5%-3.75% to 3.75%-4%.

The quarter-point increase followed five consecutive meetings this year in which the central bank left rates unchanged.

Mortgage rates moved higher following the decision. The average rate for a 30-year fixed refinance climbed to 7.14% from 6.87% a week earlier, while the average 15-year fixed refinance rate reached 6.30% Thursday, according to the Mortgage Research Center.

The higher borrowing costs could add pressure to an already challenging housing market. Real estate experts DaGrosa and Rubin said sellers may eventually have to adjust their expectations as buyers face increasingly expensive mortgages.

Retail sellers have benefited from substantial home-price appreciation in recent years, but some may now have to accept lower offers if they want to complete a sale, DaGrosa said. He also pointed to weakening homebuilder sentiment, warning that conditions for new construction could deteriorate before improving.

Rubin said some homeowners will continue selling regardless of market conditions because of job moves, family changes or other circumstances. Those sellers could find themselves needing to reduce asking prices if buyers remain cautious.

At the same time, millions of homeowners are staying put because they secured mortgage rates below 4% before borrowing costs surged. That so-called mortgage-rate lock-in effect has reduced the number of people willing to trade low monthly payments for a significantly more expensive mortgage.

Rubin described those low-rate mortgages as "golden handcuffs," saying homeowners who are comfortable in their current homes have less incentive to move unless doing so is necessary.

DaGrosa expects the market could shift toward buyers within the next few months. He suggested buyers may benefit from waiting rather than rushing into purchases as sellers face increasing pressure to negotiate.

Both experts cautioned that higher rates alone are unlikely to cause home values to fall sharply unless the increases persist. The spring housing market could provide a clearer indication of how buyers and sellers are responding to the new rate environment.