Higher interest rates are coming.
There appears to be no question that higher interest rates are on their way this year. In fact; we’ve probably reached a tipping point, putting us in a new era of rising and higher rates for some time. Many might not live to see rates this low again. So, what does it mean for real estate?
The Fed has said it plans to raise interest rates at least 2-3 times this year, at least. Mortgage rates have been at incredible lows for a while. In fact, they have been sitting at about half the historical norm for years, and less than one fifth of the high. That suggests we should be prepared for average loan rates to march back up to the 7 to 7.5% range, and potentially go even higher before they cool.
The media is split on why rates are being raised. Some say it is warranted given a better economy. Others believe the talk is all on the expectation that the new government will spur more economic growth. Others still, pose that rates are only being lifted in order to give the Fed tools to work with (meaning reducing rates again) if the economy doesn’t take off. No matter who is right, rates appear to only be going up.
There are several potential positives of higher interest rates. This could include spurring more lending and encouraging lenders to finally ease underwriting criteria to encourage more borrowing. Knowing that higher rates are coming, and are likely to continue to escalate for a long period should also spur more activity and momentum in the real estate market. Expect more refinancing, sales, and buying activity.
On the downside, it will make buying and borrowing more expensive. It will cramp yields for investors who are refinancing or making new acquisitions. However, this could be somewhat offset by high rents and prices, and easier lending criteria.
Still, this is definitely the time for taking action to buy a home, refinance, and invest, while locking in low long term interest rates.