Why High Mortgage Rates Make this a Great Time to Sell your Home

For many months — years now, actually — the dominant real estate narrative has been that high mortgage rates are killing the housing market. Buyers are struggling with affordability, and many homeowners feel trapped in their ultra-low interest rate loans, unwilling to sell and take on a significantly higher mortgage payment.

You hear this all the time from talking heads on television and YouTube. I heard it just the other day on Bloomberg of all places. The host said she can’t imagine selling her some since she’s locked in to a 2.75% rate that is just too good to give up.

While it’s true that high interest rates have changed the dynamics of the market, there’s another side to the story — one that actually benefits home sellers. It is clear to me that people are really missing the huge opportunity that this high(er) mortgage rate environment creates for sellers — and that lower mortgage rates will likely not bring them the “relief” they think they need.

Here is why I say that higher mortgage rates are actually good for sellers:

1. Less Competition Means Stronger Pricing

The biggest impact of high mortgage rates has been on housing supply. Homeowners with 3% mortgage rates don’t want to trade them for a 7% mortgage, which means fewer homes are hitting the market.

With fewer sellers listing their homes, inventory remains near historical lows. And in real estate, low supply equals higher prices.

It’s really as simple as that. The law of supply and demand is what drives real estate prices, always. Anything that limits supply will necessarily increase prices, while demand remains steady.

And demand is absolutely remaining steady. Actually, there is a huge pent-up demand, as America has been under-building for decades while growth has continued, unabated. The millennial generation is now the largest in the country, and they are just now hitting home-buying age. There is a huge demographic wave that is washing into the market right now, at a time when inventory is severely constrained coast to coast.

Think about it:

• Buyers have fewer options, making your home more valuable.

• You don’t have to compete with as many other sellers.

• Homes that are priced right still sell quickly despite higher borrowing costs — often with multiple offers, and over asking price.

Even though buyer demand has cooled compared to 2021, home prices remain elevated because of the lack of competition. In many markets, sellers are still getting multiple offers, even in this higher-rate environment. And in many markets, prices are still increasing. In my home market of Silicon Valley, for example, we hit an all-time high median sale price in May 2024 (the vaunted spring real estate market). It’s expected that we will hit a new high price this year too.

Photo by Matt Jones on Unsplash

2. Serious Buyers Only — Stronger Offers, Fewer Wasted Showings

A low-rate environment tends to bring in a lot of casual and not especially high quality buyers — people who are just looking around — hopefuls or “dreamers” who may not be very well financially prepared to purchase. But with today’s higher rates, only the most serious, well-qualified buyers are in the market.

• Buyers today need to be financially strong to afford higher mortgage payments. In fact, the buyers out there today tend to have pretty large down payments (from cashing out some of their burgeoning stock portfolios) which help them buy in today’s environment. Big down payments present a lower credit risk for lenders, making financing these buyers more of a sure thing.

• Those who make offers are typically highly motivated and well-prepared. People who are buying homes today are doing so not because they want to, but because they need to. Need trumps want, every time.

• Fewer buyers means fewer showings, making the selling process less disruptive to your daily life. You’ll have fewer interruptions in your daily routine and won’t have to suffer as much nonsense from lookie-loos.

This shift in buyer quality means that while there may be fewer offers overall, the offers that do come in are often stronger and more likely to close. So long as you receive at least two offers on your home, you can get those buyers to directly compete against each other, helping to assure that you get the best price and terms the market has to bear.

Photo by Pearse O'Halloran on Unsplash

3. Buyers Are More Willing to Accept “As-Is” Homes

When mortgage rates were ultra-low, all kinds of weaker buyers flood the market — especially first time homebuyers. These buyers are much more likely to try to get sellers make repairs, offer credits, or agree to contingencies that benefit the buyer.

Now, in a high-rate market:

• Buyers accept homes “as-is” more often, since they are more likely to have strong cash reserves, and plan to do renovation or remodeling work after completing the sale. These picayune condition issues do not become the stumbling blocks they may when working with less well qualified buyers.
• If you’re selling a home that could use some updates, you might actually get a better deal now than in a low-rate environment where buyers expect perfection, becuase they have no cash for post-sale improvements.

4. Home Sellers Can Offer Rate Buydowns to Attract Buyers

One creative way sellers can turn high rates into an advantage is by offering a temporary rate buydown.

Instead of negotiating on price, you can offer to help buyers lower their mortgage rate for the first few years. This makes your home more attractive while keeping your sale price strong.

For example:

• Instead of dropping your price by $100,000, offer a seller-paid buydown that reduces the buyer’s interest rate by 1–2% for the first few years.

• This strategy costs less than a major price reduction but provides huge savings for the buyer.

• It makes your home stand out in a market where affordability is tight.

Many buyers prefer lower payments over a somewhat lower price, making this an effective tool for sellers.

You may have read that discount points are not actually buying much of a discount these days, and that’s true. But a seller could offer what’s called a “2/1 Buydown” that would bring significant albeit temporary relief to the buyer’s mortgage payment.

A 2/1 buydown would mean that in the first year of the loan, the mortgage rate is reduced by 2 percent, followed by a 1 percent reduction in the second year. By the third year, the loan reverts to the full fixed rate for the remainder of the term.

How much might such a buydown cost a seller? The cost of a 2/1 buydown on a $1,000,000 mortgage at 7% would be approximately $23,316 — which is a lot cheaper than a $100,000 price reduction.

In the first year, the interest rate is reduced to 5%, lowering the monthly payment from $6,653 to $5,368, saving the borrower $1,285 per month or $15,420 for the year. In the second year, the rate is 6%, with a monthly payment of $5,995, resulting in a monthly savings of $658 or $7,896 for the year. The total cost of the buydown is the sum of these savings over two years.

Offering a buydown feeds into buyer beliefs that lower mortgage rates are coming soon, so a seller buydown makes sense to them. Remember, they are being told by their mortgage lender and REALTOR® that they’ll be able to permanently refinance into a lower rate for the long term in another year or two.

Photo by Olav Ahrens Røtne on Unsplash

5. Inflation Helps Sellers Protect Their Equity

Real estate has always been seen as a strong hedge against inflation. And in an environment where inflation remains elevated, home prices tend to hold their value better than many other assets (over the long term).

If you’ve owned your home for a while, chances are you’ve built significant equity. With these higher rates, supply remains constrained while demand for housing remains strong enough that home values are not plummeting.

It’s important to understand why rates are high today: the demand for money is strong. Rates, like housing prices, respond to the law of supply and demand. Really, we should only expect to see lower mortgage rates when the economy weakens, which could happen for any number of reasons.

But when economies weaken, we can expect to see higher unemployment weak wage growth, and diminished consumer confidence. This would definitely drive down rates, at the cost of shrinking the buyer pool (and thus demand).

Selling now allows you to:

• Lock in your home price gains before market conditions shift.

• Cash out and reinvest in other opportunities (of which there are many).

• Move forward with your life plans without waiting for the “perfect” market conditions.

Now is Actually a Great Time to Sell

High mortgage rates have changed the real estate market, but they haven’t stopped it. The reality is, homes are still selling, and sellers who understand today’s market can still come out ahead.

• Less competition keeps prices strong, and results in quick sales on superior terms, often with multiple offers and over asking price.

• Serious buyers mean stronger offers and smoother and faster deals.

• Creative financing options like rate buydowns can attract more buyers without sacrificing too much of the seller’s net proceeds.

• Selling now lets you cash in on your equity before market conditions shift.

If you’ve been hesitant to list your home because of higher rates, it’s time to reconsider. The market still presents plenty of opportunities for sellers who price strategically and understand today’s buyer mindset.

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Seb Frey is a top Silicon Valley REALTOR® helping people get rich in real estate. Check out his YouTube Channel, SebFreyTV.