Announcing a new affiliate partnership with Forclosure.com by way of this article. Since I began thinking…
I try to create articles that will last for a while in terms of relevance, but with real estate you also have to keep current with market trends. One of the things that you’ll witness being in a continual state of flux is the interest rate. It’s determined by several factors, but it all boils down to supply and demand. Today’s news is reporting that the 30 year fixed mortgage rate hovers close to 7.5% (last year it went as low as 5.5%). When you consider the fact that many homes are selling for $500,000 or higher, a 2 percent difference can make or break a transaction.
- Reduced Affordability: When mortgage rates are high, the cost of borrowing money to purchase a home increases. This means that potential homebuyers might find it more difficult to afford homes, especially if their monthly mortgage payments become more expensive. This can lead to a decrease in demand for homes, particularly among first-time buyers and those with limited budgets.
- Decreased Home Sales: As affordability decreases due to higher mortgage rates, the number of home sales tends to decline. Sellers might have to lower their asking prices to attract buyers, which can lead to slower sales activity in the market. In a situation like that, many people decide that the best course of action is to stay put.
- Impact on Housing Demand: High mortgage rates can deter some buyers from entering the market, which can lead to a decrease in housing demand. This reduced demand can put pressure on builders. The incentive to produce homes is lower because people cannot get decent mortgage rates.
- Refinancing Activity: High mortgage rates often discourage homeowners from refinancing their existing mortgages. Refinancing can be an attractive option when rates are low, as it allows homeowners to replace their current higher-rate mortgage with a new lower-rate mortgage. Reduced refinancing activity can impact lenders and the broader economy.
- Shift in Rental Demand: To put this simply… RENT WILL GO UP. In most cases it rises each year, regardless. In a situation where more people are opting out of ownership and deciding to rent, the demand for an apartment increases exponentially. As interest rates ease people will naturally become less apprehensive about taking out mortgages. They want to rent.
It’s important to keep in mind that with every type of adversity there are also possibilities. Investors may decide that apartment building ownership is the way forward. They may approach the situation as a collective, and split the rental revenue. Foreclosures will also be on the rise as some owners find themselves unable to keep up. If you’re a cash buyer you can benefit in several ways from that. Because of the fact that everything is so closely related in real estate it’s difficult for any market changes to be isolated. If you develop an understanding of how one thing affects the other, you can time the market effectively, without panic buying / selling.