First I'd like to start this message off with a kind thank you to all that have been reading this blog. This will be a simple, and short message.
One, to wish everyone a happy thanksgiving! It is my hope that no one falls alseep at the kitchen table and that politics, religion and money conversations run family out of your home.
My hope for everyone is to be able to share at least one thing they are grateful for, and to genuinly spend time with their loved ones creating fun and lasting memories.
Maybe even a little of this...
Now today's conversation would not be complete without a little real estate thrown into this mix. I will bless you with the most interesting topic and perhaps "food for thought" - Interest rates!! Don't everyone jump for joy at the same time now. 😂
Let's dive in...
The Impact of Interest Rates on Real Estate:
Let's start with a quick refresher on interest rates. These rates, set by central banks, influence the cost of borrowing money. When interest rates are low, borrowing becomes more affordable, stimulating economic activity. Conversely, when interest rates are higher, they can cool down an overheated economy by..you guess it! Making borrowing more expensive.
Now here's 3 impacts of interest rates relative to real estate and applicable transactions.
Mortgage Rates and Affordability: As interest rates fluctuate, so do mortgage rates. Lower interest rates typically mean lower mortgage rates, making homeownership more accessible. For real estate investors, this often translates to increased demand for properties, driving prices higher. So everyone "waiting it out" for rates to get better... it's unlikely to make a difference when prices will rise accordingly.
Investor Strategies in a Low-Interest Environment: During periods of low interest rates, investors often adopt different strategies. Some folks have recently mentioned flipping to me to get started. Well, flippers may find it easier to secure financing for renovation projects in low interest environments but that is not the case right now. I'd caution against this as term sheets look less and less favorable. When rates are lower, buy-and-hold investors will benefit from lower mortgage payments, potentially boosting cash flow. With the high rates that we are currently seeing, it's still harder to find deals penciling, but not impossible. All in all, we are in a time with inflated rates but I always say buy real estate and wait...if you can help it. If not, invest in a solid deal passively!
Market Dynamics and Property Values: Interest rates play a pivotal role in shaping overall market dynamics. When rates are low, the demand for real estate tends to rise, potentially leading to increased property values. However, when interest rates climb, the pace of property appreciation may slow down. Both of these have held as incorrect in todays market. We are in a time where demand is much higher than supply can keep up. As a result, property values in most markets have held steady, even increasing, while prices have also held steady due to a sort of seller strike. Too many Americans sit with sub 4% rates and as such are in no hurry to sell. This creates a problem for investors and would be first time homebuyers looking for their first home.
All in all, the message is this. If you are sitting inside of a home in which you have substantial equity, the lights and utilities are on and there is food on your table...today is a good day.
Stay blessed this holiday season.
Until next time,