Why Real Estate Prices Tend to Fall When Interest Rates Rise | What You Should Know Before Selling Your Home

Hello. I am SHIINA, and I work in real estate in Fukuoka City.

This time, I would like to talk about “interest rates,” which many people are currently concerned about.

Recently, the Bank of Japan raised its policy interest rate again. Seeing the term “rate hike” in the news, some of you might be wondering:
“Will the price of my house go down?”
“Is it better to sell sooner?”

Let me give you the conclusion first.
Rising interest rates are a factor that tends to push real estate prices downward.
However, “interest rates have risen” does not necessarily mean “prices will drop significantly right away.”
In this article, I will explain as clearly as possible why real estate prices tend to fall when interest rates rise, and the key points that those considering selling their homes should know.

To begin with, what is happening with interest rates right now?

First, let’s organize the trend of interest rates over the past year or two (as of October 2026).

• March 2024: Negative interest rate policy ended

• December 2025: Raised to approximately 0.75%

• June 2026: Raised to approximately 1.0%

• September 2026: Raised to approximately 1.25%

When the policy interest rate (the rate set by the Bank of Japan that serves as the benchmark for interest rates in society) rises, bank mortgage rates also rise accordingly.
In fact, from the summer to the autumn of 2026, many financial institutions, mainly online banks, raised their variable interest rates.

In Japan, where “ultra-low interest rates” have been the norm for a long time,
the current situation is that we are returning to an era where interest rates exist.

Point: As of October 2026, the policy interest rate is around 1.25%. Mortgage interest rates are also on a gradual upward trend.

Three reasons why real estate prices tend to fall when interest rates rise

Reason 1 | The “amount that can be borrowed” by buyers decreases

Most people who buy a home use a mortgage. And many people
think about their budget based on “how much they can afford to pay monthly.”

For example, if you consider a monthly repayment of 120,000 yen, with a 35-year repayment period, equal principal and interest, and no bonus payments, the amount you can borrow changes as follows depending on the interest rate.

• Interest rate 0.5% → Amount that can be borrowed: approx. 46.2 million yen

• Interest rate 1.0% → Amount that can be borrowed: approx. 42.5 million yen

• Interest rate 1.5% → Amount that can be borrowed: approx. 39.2 million yen

• Interest rate 2.0% → Borrowing capacity approx. 36.2 million yen

*This is just an example. The actual amount you can borrow depends on your annual income and the results of the screening.

Just by interest rates rising from 0.5% to 1.5%, even with the same monthly repayment amount,
the amount you can borrow decreases by about 7 million yen according to calculations.

If the buyer’s budget drops, more people will say,
“I can’t afford a 45 million yen property, but I can at 39 million yen.”
As a result, it becomes harder to find buyers at high prices, and sellers will need to reconsider their pricing. This is the biggest reason why real estate prices tend to fall when interest rates rise.

Reason 2 | The “yield” demanded by investors increases

Real estate is purchased not only by people who live in it, but also by investors aiming for rental income. Investors judge the price of a property based on its yield (the ratio of annual profit to the investment amount), which is “what percentage of the purchase price the annual rental income represents.”

For example, in the case of a property with an annual rental income of 1.2 million yen,

When interest rates rise, you can earn a certain amount of interest from savings and government bonds, and the burden of loan repayments also increases, so investors start to think, “It’s not worth it unless the yield is higher.” As a result, even for properties with the same rental income, the price that can be set tends to decrease. A characteristic of this is that investment condominiums and properties that can be rented out are more susceptible to this influence.

Reason 3 | More properties go on the market, and buyers have more choices

When interest rates rise, some people paying off home loans with variable interest rates may decide to let go of their homes due to the burden of repayment. Investors may also put properties with increased borrowing burdens on the market.

When the number of properties on the market increases, buyers can take their time to choose, saying, “I’ll decide after comparing it with other properties.” When that happens, sellers need to come up with ways to get chosen through pricing or how the property is presented, and price negotiations become more likely.

Point: When interest rates rise, “buyers’ budgets decrease,” “investors’ standards become stricter,” and “the number of properties for sale increases.” These three factors combined make real estate prices more likely to fall.

Reasons why it still doesn’t necessarily mean it will “drop significantly right away”

Reading this far, you might feel anxious and think, “I have to sell quickly.” However, interest rates are not the only thing that determines real estate prices. There are also factors that support prices.

Construction costs remain high, making it difficult for the price of new properties to fall

Due to rising material costs and labor shortages, construction costs for new condominiums and new detached houses remain at a high level. If the price of new construction is difficult to lower, a certain level of demand is likely to remain for used properties that feel relatively cheaper by comparison.

Fukuoka City has a growing population, and the demand for housing is solid

Fukuoka City is a city where the population continues to increase among all designated cities in Japan. Many people look for housing due to job transfers, further education, or employment, so it can be said that it is an area with solid demand for housing.

For those already repaying a loan, the repayment amount may not increase immediately.

Some variable-rate mortgage loans incorporate a “5-year rule” or a “125% rule.”

The “5-year rule” is a mechanism where, even if interest rates rise, the monthly repayment amount remains unchanged for a certain period, and is generally reviewed every five years.

The “125% rule” is a mechanism that limits the revised repayment amount to 1.25 times the previous amount when the repayment amount is reviewed.

Therefore, even if interest rates rise, it does not necessarily mean that your monthly repayment amount will increase immediately. Even if the monthly repayment amount does not change, if interest rates rise, the proportion of interest in the repayment amount increases, making it harder for the principal to decrease.

Note that these rules do not apply to all mortgage loans. It is reassuring to check the contract details for your own loan.

Point: There are also factors that support prices, such as high construction costs and population growth in Fukuoka City. Even if interest rates rise, it does not mean prices will “drop sharply starting tomorrow.”

What those thinking about selling their home should know

There are properties that are easily affected and those that are not

The impact of rising interest rates does not affect all properties in the same way.

Tendency to be easily affected

• Investment and income-generating properties

• Properties in high price ranges purchased by people taking out large loans

• Properties far from stations or in areas with limited demand

Tendency to be less affected

• Family-oriented condominiums near stations with high convenience

• Affordable properties that many people can afford to buy

• Properties in popular areas with high demand

*This is just a general trend.
The actual impact varies depending on the conditions of each property and market conditions.

Depending on which category your home is closer to,
“whether you should hurry”
or “whether you can wait and see” will change.

Considering the asking price from the perspective of the buyer’s budget

When interest rates are rising, it is very important to look not only at “how much you want to sell for,” but also at
“how much can the person likely to buy this house afford to borrow?”

For example, if it is a condominium that a dual-income family in their 30s might buy,
how much can that household reasonably borrow at current interest rates?
Calculating the asking price by working backward from that figure
makes it easier to avoid having the property sit unsold or having to make significant price cuts.

There are both pros and cons to a “wait-and-see” approach

Deciding to “wait and see for a while because it’s unclear what will happen with interest rates” is, of course, a valid option.
If you have no reason to sell in a hurry, there is no need to force a move.

However, even while you are waiting, you will continue to incur property taxes, management fees, and repair reserve fund contributions, and the building will gradually age.
It is reassuring to decide in advance “how many years you will wait” and “what conditions will trigger you to take action.”

Point: The impact of interest rates varies by property. It is important to understand your home’s position from the perspective of the “buyer’s budget.”

Caution: “Rising interest rates” does not mean “you must sell now or lose money”

When you see news about interest rates, it is easy to feel anxious. However, you should be aware of the following points.

• If you are moving, the loan interest rate for your next home will also rise: Even if you sell your current home for a high price, the loan burden when buying your next home may increase. It is important to think about the numbers for both the selling and buying sides.

• The money you keep is not determined solely by the “selling price”: Capital gains (transfer income) are calculated as “selling price – acquisition cost – transfer expenses,” and taxes may be applied to that amount. Whether or not you can use special tax exemptions will significantly change the amount you keep.

• Selling in a rush can actually lead to a lower price: If you list your property without sufficient preparation, you may end up settling for a price lower than the market rate.

Regarding special tax exemptions and the like, the conditions are strictly defined, so I recommend consulting with a professional such as a tax accountant for your specific case.

Specific case studies

Here, I will introduce three model cases to help you visualize the approach (these are not actual cases, but examples for explanation purposes).

Model Case 1 | Selling a 15-year-old family-oriented condominium

A 3LDK apartment a 10-minute walk from a station in Fukuoka City. Similar apartments nearby are listed for around 45 million yen.

The people likely to buy this apartment are families with children in their 30s.
If interest rates rise, and
the amount that household can reasonably afford to pay monthly drops to the low 40 million yen range,
listing it for around 43 million yen rather than 45 million yen may lead to a faster sale. This is a case where looking at “the buyer’s budget” in addition to “market rates”
makes it easier to determine the asking price.

Model Case 2 | Unsure what to do with an inherited suburban detached house

A suburban detached house inherited from parents that requires a bus ride from the station.
It is currently vacant, and it is incurring property taxes and the hassle of weeding.

For such properties, the pool of potential buyers is often limited, and
they also tend to be more susceptible to the effects of rising interest rates.
On the other hand, special tax exemptions, such as the “30 million yen special deduction for inherited vacant houses,” have expiration dates. This is a case where it is better to decide whether to sell early, taking into account not only interest rate trends but also the deadlines for these exemptions and maintenance costs.

Model Case 3 | When you want to sell your current home and move

A couple whose children have moved out and who want to sell their current detached house and move to a compact apartment near the station.

Even if the sale price of your current home drops slightly due to rising interest rates, if the price of your next home is affected in the same way, the difference may not change much. However, if you are taking out a loan for your next home, your repayment amount will increase due to the higher interest rates. This is a case where it is important to calculate “how much you can sell for” and “how much you can buy for” as a set.

Frequently Asked Questions (FAQ)

Q. If interest rates rise, will real estate prices in Fukuoka City definitely fall?

A. Not necessarily.
While rising interest rates are a factor that tends to push prices down,
there are also factors that support prices, such as high construction costs and population growth.
The impact also varies depending on the area and the type of property.

Q. Should I sell in a hurry before interest rates rise further?

A. If you don’t have a reason to sell in a hurry, there is no need to panic.
However, it will be easier to make a decision if you check whether your home is the type that is easily affected by interest rates and
roughly how much it might sell for.

Q. Can I sell a house that still has a mortgage on it?

A. Yes, you can. Whether you can pay off the loan in full with the proceeds from the sale is one benchmark.
Comparing your remaining loan balance with the estimated sale price will provide material for your decision on whether to sell.

Q. Should I change my asking price in line with interest rate movements?

A. Rather than interest rates themselves, it is recommended to judge based on “whether there are actual inquiries or viewings”
and “how much similar nearby properties are selling for.”
It is common to review the price while watching the response even after putting it on the market.

Summary

In this article, we discussed “why real estate prices tend to fall when interest rates rise.”

• When interest rates rise, real estate prices tend to fall for three reasons: buyers’ budgets decrease, investors’ perspectives become stricter, and the number of properties for sale increases.

• However, there are also factors that support prices, such as high construction costs and population growth in Fukuoka City, so it is not necessarily the case that prices will drop significantly right away.

• If you are thinking about selling, it is important to know where your home stands from the perspective of “buyers’ budgets.”

Next time, we will talk about “How should you choose a real estate company?”

📩 If you have any concerns, please feel free to consult with us.

“Interest rates are rising, but what about my house?”
If you are wondering, “Should I sell now, or should I wait a little longer?” please feel free to contact us via LINE. We welcome consultations even if you haven’t decided whether to sell yet. Consultations are free.

🏠 We also accept sales appraisals. If you are curious about how much your apartment, house, land, or family home in Fukuoka City might sell for at current interest rates, please feel free to request an appraisal.

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I hope you continue reading.
SHIINA