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The Pros and Cons: How Rising Rates Affect Affordability and Homeownership

Mortgage rates have taken us on a roller coaster ride this year. A slight increase began as home prices grew due to the sustained low supply of inventory matched with high demand. With recent economic and pandemic uncertainty, rates began to steady. Experts and consumers expect that rates will only continue to rise within the next year, though, at a much slower pace.

Rising rates reflect a strong economy but also affect buyers and their monthly loan costs. What are the pros and cons of these rising rates? Here is what to keep in mind if you are in the market.


Though this year has proved to be a seller’s market, low-interest rates favored buyers. Rates that dropped significantly at the start of the pandemic drove potential buyers to the market to find a bigger house to fit their needs. 

More Sales – From a seller’s perspective, rising rates could bring about more sales. Wavering buyers see mortgage rates rising and then decide to jump into the market. Buyers want the best rate possible, and some may feel they missed out on even lower rates last year. Buyers are choosing to take advantage before rates surge even higher. Especially as home prices grow, low rates remain the motivator in increased buyer activity.

Strong Economy – Rising rates tend to indicate a strong economy. In the first quarter of 2021, rates started to increase above the 3 percent level. Consumer confidence rebounded and more jobs became available as people around the country went back to the offices. Buyers entered the market determined through the spring and summer seasons. Recently consumer prices increased to 5.3 percent in August. However, price gains are slowing, which is a sign inflation could be receding, according to

Buying Opportunity – As home prices rise, rates are still low keeping affordability approachable. If you are stuck between buying and waiting, consider your goals from now until next year. Waiting to buy could cost more with the potential for rates to climb another one percent. If your budget, the loan rates, and home price match, then take the opportunity to buy. Available homes selling at or under listing price do exist. Two-thirds of homes on the market are not selling for more than the asking price. And more houses are coming. Of course, make sure to speak with your agent for all home search options.


Affordability – With home prices growing all over the nation, rising mortgage rates do not help buyer affordability. As rates grow, home prices and property values tend to increase. While this can be a plus for sellers listing at a higher price, it may lessen the number of buyers who can afford the home. The increase can shrink the purchasing power amount and hit first-time buyers the hardest. As the job market grows and the economy gets stronger, more buyers can confidently enter the market. Thankfully, rates are still at historic levels. With rates expected to rise more slowly than last year, increases should not hinder the housing market. 

Lesser Home Sales – Existing home sales were down 2.2 percent in September. Expected to only decrease by 0.7 percent, this is considered a miss, according to the National Association of Realtors (NAR). A decrease in sales was reflected in all regions across the nation and the cause is rising home prices. The median home price was up 5.9 percent year over year and inventory was down 2.7 percent making it harder for buyers to purchase. 

Apart from rising inflation, with the Federal Reserve signaling, it might start tapering its asset purchases by the end of this year, “mortgage-backed securities, more importantly, are the main contributor to these incredibly low rates. So I do see as the Fed begins to cut back on some of those purchases, mortgage rates will trend up,” suggests Ratiu.

Monthly Payments – Upward trending rates directly affect monthly payments for buyers looking to become homeowners. That one percent increase can make all the difference in what the monthly cost is. Snagging a lower rate now can bring huge savings for homeowners later – hundreds on their monthly bills and thousands on their long-term investment. 

Refinancing – For homeowners, refinancing your current loan may still be a great option. Applications for a home refinance did drop four percent at the beginning of the month. Mortgage rates saw little movement from the 3.03 percent average, so homeowners stayed put. However, according to Bank Rate, only 19 percent of homeowners took advantage of the low rates to refinance their mortgage with the lower rates – leaving about 74 percent who have not refinanced their loan, regardless of the low hanging rates. Bank Rate conducted a survey and found why some consumers opted out of refinancing opportunities. Reasons such as not saving enough money, closing costs, paperwork, and low credit scores were all included on why refinancing was not the right move. 

Rates are still low. Consider refinancing your rate or shortening your loan term – it could be worth the time and money in the long run. Take the opportunity to speak with your lender and see if refinancing at today’s rates makes sense for you. 


Experts from Freddie Mac and Fannie Mae, NAR, and the MBA predict rates will increase, ranging from 3 to 3.7 percent in 2022. We could see rates live closer to the four percent average, and even then, they would still be considered on the lower end compared historically.

Finding the best mortgage for everyone is different. It is in your best interest to gather your financial goals, set a firm budget, and speak with a mortgage professional to figure out your best options.

There will always be pros and cons in the real estate market. Count on your agent and lender to help you take advantage of the pros while being aware of any cons, so you can benefit the most. 

This article is intended to be accurate, but the information is not guaranteed. Please reach out to us directly if you have any specific real estate or mortgage questions or would like help from a local professional. The article was written by Sparkling Marketing, Inc. with information from resources like NAR,, and CNBC 

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