Interest rates are the big buzz right now as they've jumped more in the last couple weeks than they have in years. However, the biggest concern is to what extent we see it impacting different markets.
I know my dad, a long time financial advisor, is very much of the opinion that the rise in interest rates is going to have a very negative impact on the housing market. If you're in his camp, I think you take the "doom and gloom" attitude that combines increasing interest rates, low activity towards the end of the year, election year slumps, and pre-recession high prices to argue that there is bad news on the horizon for real estate in particular despite the potential for Trump's supposed more business friendly policy.
Not that I'm on the polar opposite end of the spectrum, but I think I have a slightly different attitude. My attitude is more along the lines that I suspect that we will see an increasing gap between the have's and have nots. Investors have taken a backseat for the last one to three years because the rate of opportunity has dropped dramatically as an increasing number of people have become investors and flooded that marketplace. However, with decreasing opportunity to add value and decreasing cap rates, investors and all cash buyers have backed off a bit as renters became owners as they began to qualify for home loans. (We will figure that millenials moving out of their parents' homes are cancelled out by renters becoming home owners.) As someone who works with quite a few investors, I think we're seeing a lot of pent up demand from investors because they have been fewer opportunities and more ownership competition with renters becoming buyers. Investors are typically your all cash buyers and not nearly as affected by rising interest rates. As interest rates rise, I think we will see investors willing to take slightly bigger risks because people who would have made the plunge and purchased a home, will now be discouraged by the rising interest rates and will remain part of the rental pool significantly longer than before. Thus I expect that the gap between renters and investors will increase as interest rates rise and potential buyers are discouraged.
If you take my attitude there are several other aspects to consider. First is that investors will prevent a real estate crash as they won't be able to walk away from obvious deals and will preserve the marketplace. Employment is good, current equity rates in homes are good and we're expected to have more pro business policies to expect with a Trump presidency, but time will tell with that last one. Second, I think there might be increasing opportunity in the first time home buyer market for investors. I also think we will see an increase in pricing in that market. Let me explain why. My brother is the high for millenial population age at 24 years old. As his friends and my friends alike begin to settle down and consider having families, typically one of the key steps in that process is purchasing a home. However, I suspect that lending rates will discourage purchases, but that body clocks will prompt moving into small, single family starter homes. I'm sure there are other elements to consider throughout this changing environment, but that's what my blog is for. So stay tuned and enjoy the rest of the weekend.
I know my dad, a long time financial advisor, is very much of the opinion that the rise in interest rates is going to have a very negative impact on the housing market. If you're in his camp, I think you take the "doom and gloom" attitude that combines increasing interest rates, low activity towards the end of the year, election year slumps, and pre-recession high prices to argue that there is bad news on the horizon for real estate in particular despite the potential for Trump's supposed more business friendly policy.
Not that I'm on the polar opposite end of the spectrum, but I think I have a slightly different attitude. My attitude is more along the lines that I suspect that we will see an increasing gap between the have's and have nots. Investors have taken a backseat for the last one to three years because the rate of opportunity has dropped dramatically as an increasing number of people have become investors and flooded that marketplace. However, with decreasing opportunity to add value and decreasing cap rates, investors and all cash buyers have backed off a bit as renters became owners as they began to qualify for home loans. (We will figure that millenials moving out of their parents' homes are cancelled out by renters becoming home owners.) As someone who works with quite a few investors, I think we're seeing a lot of pent up demand from investors because they have been fewer opportunities and more ownership competition with renters becoming buyers. Investors are typically your all cash buyers and not nearly as affected by rising interest rates. As interest rates rise, I think we will see investors willing to take slightly bigger risks because people who would have made the plunge and purchased a home, will now be discouraged by the rising interest rates and will remain part of the rental pool significantly longer than before. Thus I expect that the gap between renters and investors will increase as interest rates rise and potential buyers are discouraged.
If you take my attitude there are several other aspects to consider. First is that investors will prevent a real estate crash as they won't be able to walk away from obvious deals and will preserve the marketplace. Employment is good, current equity rates in homes are good and we're expected to have more pro business policies to expect with a Trump presidency, but time will tell with that last one. Second, I think there might be increasing opportunity in the first time home buyer market for investors. I also think we will see an increase in pricing in that market. Let me explain why. My brother is the high for millenial population age at 24 years old. As his friends and my friends alike begin to settle down and consider having families, typically one of the key steps in that process is purchasing a home. However, I suspect that lending rates will discourage purchases, but that body clocks will prompt moving into small, single family starter homes. I'm sure there are other elements to consider throughout this changing environment, but that's what my blog is for. So stay tuned and enjoy the rest of the weekend.
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