Mortgage rates are the hottest topic in the real estate industry. The Chairman of the U.S. Federal Reserve, Jerome Powell, recently said they are not ready to start cutting rates. However, there is optimism that the Fed could start cutting rates in 2024.
Higher-than-normal interest rates are affecting supply and demand in the real estate market. Many potential homebuyers are staying on the sidelines. They will not start shopping until rates drop below 7%.
Read on to explore real estate investments during a period of high-interest rates. Learn more about home financing and how higher rates reduce your purchasing power.
How Do Mortgage Rates Affect Your Home Search?
A real estate agent or property management company will help you find an investment home. Part of that process includes establishing a budget range. This allows the professionals working for you to prepare a customized property search.
Many investors and residential property owners have a monthly payment in mind. Perhaps they follow the rule that states you should not spend more than 30% of your monthly income on a mortgage.
Higher interest rates cut against your purchasing power. When rates are high, a greater proportion of your mortgage payment goes towards interest. This leaves less budget for the principal and will force you to shop for homes in a lower price range.
How Are High Rates Affecting the Market?
The vast majority of homeowners currently have a mortgage rate lower than 4%. They are unwilling to give that rate up and are staying put.
This results in fewer homes on the market. It also means fewer mortgage applications.
At the same time, low inventory is applying upward pressure on home prices. Cash buyers and those willing to pay higher rates are competing for fewer homes.
Increasing prices continue to burden shoppers, especially first-time homebuyers. They do not have equity to leverage to reduce borrowing costs.
What Is Next for Mortgage Rates?
Real estate investors are anxiously waiting on the Fed's next move. If the Fed decides to slash rates, mortgage rates will follow suit.
Economists do anticipate that the Fed will cut rates several times in 2024. The expectation is that they will continue to do so into 2025.
However, the initial rate cut is taking longer than many real estate experts hoped for. Inflation is proving more difficult to contain than many policymakers originally thought.
At the same time, the American economy is resilient and strong. Rate hikes typically slow down the economy, but this is not happening in this case. The Fed does not have a lot of urgency to change course right now.
Your Guide to Mortgage Rates and Real Estate Investments
You now have a better understanding of how mortgage rates are affecting today's real estate market. The good news is that rates may go down in 2024. The bad news is that the Fed has not triggered this decline yet.
PMI Destination Properties has been helping real estate investors navigate challenging markets for over two decades. If you need assistance with real estate investments and financing, contact us at PMI Destination Properties to speak with an expert.
