Interests Rates Are Rising. What Does That Mean For Investment Properties?
Okay, it’s no big secret that the housing market has been through…well, A LOT. In the last two years alone, we’ve had:
*property tax increases
*a shortage of housing inventory
*rising costs of construction material
Oh and the COVID-19 pandemic. There’s that too.
Yet, somehow, the real estate market has managed to soldier on, with motivated investors still searching for that perfect investment property and that perfect investment property loan. And just when you think there’s a light at the end of the housing market tunnel, then we’re hit with (cue scary music) slowly rising interest rates.
In the last several weeks, mortgage interest rates have increased across all categories, following the Federal Reserve’s first rate hike since2018 to help fight inflation. The interest rate on a 30-yearfixed-rate mortgage topped 5%, compared with less than 3% a year ago. According to The Mortgage Reports, the Fed’s latest actions could put pressure on mortgage rates throughout the entire rest of 2022. And if interest rates were to rise even more rapidly as the year goes on, it could possibly slam the brakes on the entire housing market.
In the real estate business, conventional wisdom says that rising interest rates can make getting a home loan (whether it be for a fix and flip, long-term rental, bridge, or even a bank statement loan) more challenging or maybe even less desirable. Hypothetically speaking, property value and housing prices can directly correlate to mortgage rates.
So, yeah, this might all sound like gloom and doom, especially if you’re considering dipping your toe into the investment property pool. But we here at loanguys.com are here to tell you that it’s not all bad news. In fact, it’s kind of the exact opposite. Yes, mortgage rates have been slowly rising since the start of this year and are expected to increase throughout 2022. And while that might seem catastrophic, it’s not. Here’s why…
1) While interest rates are certainly above what the historic lows were earlier in the pandemic, they're still relatively low. In general, now is a good time for prospective investment property owners to lock in a lower mortgage rate rather than later this year when, honestly, who knows how high interest rates could be.
2) While it’s true that climbing mortgage rates could put a damper on the housing market over the long term, Bank of America says it could increase buyers’ urgency in the short term as they rush to lock in rates. And while higher mortgage rates would price out some buyers, Bank of America say sit won't be enough to stop the housing market from posting strong home price growth this year.
3) As mortgage rates rise, the effect on real estate investing can be positive. The market for rental properties will increase because fewer people can qualify for home mortgages. Thus, more people will need rental properties until they can afford a mortgage. (Which is probably exactly what you’re hoping for!)
4)According to data from the Chicago Association of Realtors (CAR),rising interest rates aren’t making a significant impact as far as market slowdowns — buyer demand still remains high. In fact, buyers may move even faster to buy having learned how quickly rates can increase in just one year. Diminished opportunities for some also means less competition for others, so regardless of interest rates, realtors say it’s still a great time to buy a home, as when things get chaotic around the world, buyers feel comfortable investing in real estate.
5)Demographics also contributing to the fact that rising interest rates doesn’t necessarily mean you should stayaway from property investment: a strong labor market, higher personal savings during the pandemic, and millennials who survived the Great Recession and are now financially ready to buy homes for their growing families. All of this is to say that, as the economy continues to grow, and we continue to see job growth and wage growth, a rise in interest rates should not paralyze the housing market.
Of course, finding the right investment mortgage loan during these interesting interest rate times (see what we did there?) depends on receiving the right advice from seasoned mortgage lenders like the folks at loanguys.com. When working with financial loan experts who know their stuff, it enables prospective investors to feel more knowledgeable, confident, and secure with their financial decisions. The future of mortgage interest rates may be uncertain, but that doesn’t mean you have to be when it comes to investment property opportunities.