How Will Rising Interest Rates Impact the Real Estate Market?
Most people know by now that the Federal Reserve raised interest rates by half a percentage point in early May. The move was meant to deal with high inflation rates by reducing prices on almost everything purchasable. A Hinsdale real estate lawyer can help you determine the right price.
In terms of real estate, rising interest rates will have a different impact on buyers and sellers. You may be able to get a higher return on savings, but borrowing will get a lot more expensive.
The Impact of Rising Interest Rates on the Housing Market
Rising interest rates will have a measurable impact on purchases that require large loan amounts, such as real estate. This can amount to tens or hundreds of thousands of dollars if we take additional interest charges over the timeline of a mortgage.
An increase in the Fed’s policy rate may also affect the existing housing market. For example, first-time home buyers who cannot afford to buy a house because of rising mortgage rates and home prices may remain in rentals longer. This will add pressure on the rental market, where rents are already rising.
Besides preventing people from paying their bills on time, high rent can also prevent the Fed from reducing inflation. That’s because rent rates determine housing costs in the Consumer Price Index. As such, they are one of the main driving forces of inflation.
How Real Estate Investments Fare During Inflation
Real estate owners and investors stand to gain a lot during high inflation periods. For one thing, properties appreciate remaining abreast with rising rates. Rising inflation discourages new development projects due to increasing material, labor, machinery, and other related costs. This, in turn, leads to a slump in property supplies and a further increase in prices.
Secondly, as mentioned before, inflation increase occupancy rates in existing properties such as apartment buildings. In this environment, landlords raise rents to generate as much revenue as possible. This, in turn, increases property value, as can be seen here when rents across the nation rose by about 10.2% in September 2021.
Besides this, even if interest rates rise, mortgage payments on fixed-rate instruments remain steady while equity growth speeds up. Inflation also reduces the value of owed money. However, investors should still be cautious. As debt becomes unaffordable, the demand for real estate declines as well. In the long run, that can harm asset prices.
Contact Dan Walker Law Office For A Consultation Today!
Whether you are investing in real estate or need more information about this asset class, get in touch with a professional Hinsdale real estate lawyer at the Dan Walker Law Office. We have extensive experience aiding clients whether they want to buy a home, expand their real estate holdings or require options.
We understand that real estate is the largest investment anyone can make and know the risks and rewards involved. Allow us to guide you with a consultation. We have more than four decades of experience aiding clients to reach investment milestones and can help you do the same.