How Interest Rates Affect Real Estate

Have you heard of this thing called the "FED". No this doesn't mean the police raiding someone's home! This is the Federal Reserve, or the big bank that controls the flow of money to all the other banks you probably have heard of here in America. Essentially they watch over the economy as a whole and try to regulate the crazy ups and downs we see.

They have the ability to control interest rates. Interest rates are the rates you will pay from a lender when you take out a loan. It funnels through directly into the economy. As consumers we need loans to purchase things that we want, but can't pay for in cash today. This includes cars, boats, houses, businesses, etc. Now the Fed will increase rates when times are really good in the economy. They will decrease rates when things are not so good.

Why do they do this, and what does it mean?

1. Increasing rates- When times are good in the economy, unemployment is extremely low, people are buying left and right, businesses are growing, and expansion is happening everywhere. In order to make sure this doesn't get out of control, the Fed can raise the interest rates. This means it costs more to get the same loan you wanted previously. So now the rates are higher for buying a home, or a business, or a car. This tends to turn off consumers and will slow the expansion. With less people buying, there is less growth and need for more employees.

2. Reducing rates- When times are bad in the economy and people are struggling, the Fed will lower interest rates. This makes the loans we all want very inexpensive. Thus incentivizing consumers to spend more and more! This is great for assets like real estate. It will bring in more buyers who can now afford a home. With more demand comes higher prices. This is generally a good time to sell your property as there will most likely be a lot of demand.

Currently the Fed has lowered rates in the past month, and have plans to do it again. This means money is now cheaper for loans and should stimulate more buying. (That's the hopes at least). With a lot of buyers in the market in Pittsburgh, it could be a great opportunity to sell a home.

There are a lot of things to consider before actually putting your home up for sale, but with demand comes higher prices. If you are interested in receiving an offer for your house in Pittsburgh, our team is happy to provide a free analysis and offer to see if it makes sense to sell!