There is a misconception floating around the community: interest rates do not impact all-cash buyers.
As real estate interested folks, the majority of us likely read the New York Times article about the on-going housing mania: “Rising mortgage rates should help slow the growth in home prices. But they won’t affect anyone paying cash. And higher rates will make home owning even less affordable.” (NYT Article).
In simple terms, we make two decisions with money; you save it or you spend it. When we save money, there is a variety of places for us to park it: Checking accounts, CDs, brokerage, 401(k), real estate, crypto, you name it. The highest, “risk-free,” asset to save your money is US government debt. It is a promise from the global currency factory that you will be paid back. US government debt is sold through an auction and then traded in markets to determine the value of it. The Federal Reserve impacts the amount of money in our system; how much it costs for banks to loan other banks money; and how much money banks must hold ($0 at the moment since 2020). Essentially, the Federal Reserve dictates how much money there is in the economy and how valuable money is.
When interest rates are manipulated up by the Fed (in recent news, they are raising the Federal Funds rate, how much it costs to borrow money from other banks), money becomes more valuable. Banks must pay additional fees to borrow money to then loan out. When banks are charged higher fees to borrow, YOU are charged higher fees to borrow. Vice versa, banks offer you better rates for your money.
So, long story short***,*** cash buyers are impacted by higher interest rates because money is more valuable and there are more saving opportunities. The process is far more complicated than this; however, all cash buyers are truly impacted by rising rates, not as much, but still impacted.