Why Highest Interest Rates Aren’t Automatically A Bad Thing For Real Estate
When you’re considering a real estate investment, it’s important to understand all the factors that can determine whether or not the investment is likely to be a viable option. Depending on the type of property it is, you will want to review its past performance as it compares to other properties in the same market. Speaking of the market, you will want to do due diligence on the demographics of the area to ensure that the type of investment property that you’re considering is needed in the area. However, there are also external factors to consider, including the interest rates. While high interest rates are often viewed as a deal breaker, that doesn’t have to be the case. Don’t let a high interest rate dissuade you from purchasing a piece of real estate.
The low interest rates associated with the pandemic era have made purchasing real estate an ideal situation for many people. Whether you’re looking for a new home to own, or you’re looking to add investment properties to your portfolio, the last two years have provided the lowest interest rates in history. However, economists and real estate industry experts project that those rates are going to rise now that we’re entering into a post-Covid world. That doesn’t mean that you can’t still purchase real estate!
Increases Demand for Certain Investment Types
Higher interest rates are generally a deterrent for those who are looking for a home to live in. Obviously, if you find a home that you love and fits into your budget, you shouldn’t let high interest rates shut you out of the market, but the benefits associated with high interest rates are more prevalent for investors.
Since high interest rates generally discourage people from purchasing a residential home for themselves, it does drive up the demand for other types of properties. When interest rates start rising, institutional investors raid the single-family housing market. In fact, those institutional investors spent $77 billion on single-family housing between December of 2020 and May of 2021. This makes multifamily housing options an attractive option for investors. When would-be single-family homebuyers can’t compete with corporations who are buying single-family homes, they usually concede and move into multifamily housing units that they can rent.
Location, Location, Location
In addition to driving the value of multifamily housing types, higher interest rates also facilitate the opportunity for real estate investments in certain areas. Obviously, you can invest in any area that you’d like, but the most important thing in the world of real estate has always been and will always be location. Housing prices in urban and metropolitan areas are generally higher than they are in other areas, even when interest rates are low. When you compound these higher prices with an increase in interest rates, the opportunity to invest in these thriving, heavily populated area makes itself even more obvious. Higher interest rates drive the rental market in areas that are already heavily populated, opening up the possibility for investors to rake in the prophets in these urban, metropolitan areas.
Remember, Interest Rates are Fluid
Finally, the most important reason to consider purchasing a home is found in the fluidity of interest rates. Even more importantly, this aspect of higher interest rates doesn’t only apply to investors, as it also makes homeownership a possibility to regular homebuyers.
Interest rates are a constantly changing, fluid concept. That means that even if they’re high when you meet with your mortgage official, they may go down early on in the life of your mortgage. Lending institutions are more than happy to work with people who want to refinance their mortgages to take advantage of these lower interest rates. Don’t let high interest rates scare you off, as they may come down significantly in the future.
Whether you’re investing in real estate or looking for a home to buy, you certainly have to consider the interest rates. However, you don’t have to operate in subjection to those interest rates. High interest rates, which are most certainly on the horizon, don’t have to be an unbreakable barrier into the world of property ownership for you. Instead, you can evaluate the benefits associated with high interest rates and make a sound financial decision for yourself.