What effect on R.E. will two more Fed interest rate hike have?

Question

The Federal Gov’t has two more interest rate hikes scheduled for Sept. and Dec. this year. We have already had two. Both had an immediate effect on most markets across the board.

How will this effect the R.E. Markets valuations?

Marc Roth · Answer

Where is Hero’s  home located Jay? My company Energy Network would make a donation  if it’s in a Energy deregulated State. Nevada is not and probably never will be because of Politics unfortunately

Regards

Marc Roth

CEO

Energy Network, LLC

The Client Always comes First

Account Closed · Answer

@Marc Roth Depends, if you are talking about rental market,then I can see it rising a bit since the fed is trying to match inflation, yet wage increase hasn't caught up. That means people have less money to put for down payments and less money = higher DTI. With higher interest rate, lenders will be more strict with DTIs. It won't be like last time, the government has a tight leash on banks now which is good for consumers, but bad for investors.

if you are talking about appreciation, then I think it will be stagnant or decline a bit for a while since people are less likely to buy during interest hikes and no wage increase.

If we hit a recession (most likely the stock market), the RE market should hold especially those that are buy, rent, and hold investors. Some areas might actually see an increase in rental prices cause people need to live somewhere. You also got to think about the baby boomer generation. Majority of them are getting on to their later years and dying which will create more supply.  A lot of the 'adults' the baby boomers are passing their homes to can't afford another house or don't know how to invest/rent it out.

I actually just put an offer on a home that I will be using as a primary home, the owner passed away after living in it for 20 years and her kids didn't continue paying for the home so now its foreclosed. They got so butt hurt that they took all the copper wires out, destroyed the sink in the bathrooms, covered the floor with trash and busted huge holes in the walls (saved me some money since I am doing a full rehab anyway). Thanks to them, I am able to put a $65k offer on what would normally be a $250k home (my market is still a buyer's market so homes normally sit 75+ days on the market) and there's only a handful of investors in my area so I don't really have that much competition since regular people won't touch it. Also the small investors in my area are so busy buying up a lot of properties in the area that will begin a $120 mil revitalization plan next year.

Robert Adams · Answer

while increasing , they are still historically low

increased rates will lower buying power

I doubt we will see 3% rates again in our life time. It was only that low due to the crazy crash we experienced.

Jay Hinrichs · Answer

market is calming down and that is a good thing in many areas.

Like the average owner occ in vegas was having a real tough time buying a house getting beat out left and right by cash buyers etc etc.. so if sales slow a little the FHA buyer can jump in.. As sellers will now entertain their offers.

Marc Roth · Answer

@ Eric Delcol

That answer comes based on what numbers of reality? Almost every major market is showing a slowdown in mortgage apps, property sales declining in price and sitting longer on the market.

I’ve heard this thesis before that rising interest rates somehow spur additional growth but it’s never happened in any market. The basic underlying factors of large downpayments and higher borrowing costs by either homepwners or investors never changes. It costs a lot more to own then rent. That’s something that cannot be disputed how that an lead to any “Boom” as you say is not realistic.

If anything buying as an investor to rent is an opportunity however the capital and time required up front is the deciding factor on the purchase price and additional money needed for repairs before tenancy. More now then ever location and markets have to be seriously scrutinized before buying.

I see most R.E. Investors new and too narrow focused. They are overpaying. Yet when i speak to savvy clients and highly successful long time building owners the answer universally is many markets are ridiculously overvalued and they are not buying.

Eric Delcol · Answer

@Marc Roth

From a macro level, we are currently in the growth phase of the RE cycle.

Interest rate hikes will extend the growth phase i.e. it will take longer for us to get to the 'boom' phase.