How Will Rising Interest Rates Impact Investment Properties?
With inflation at its highest point in years, the central banks have increased interest rates in order to balance out the economy by slowing the rate of borrowing. This has many people wondering how the real estate market will be affected, and how this hike in interest rates may affect investment properties. If you and have questions about trends in the real estate market, Preferred Capital Funding can help. Read on to learn more about the impact of higher interest rates on investment properties.
How Do Rising Interest Rates Impact the Real Estate Market?
It is a commonly held assumption in the world of real estate that if interest rates increase, then buying and selling a home will be more challenging. From the perspective of a homebuyer, if mortgage rates increase, then affordability of a property decreases. Higher mortgage rates also impact home sellers because if a buyer is unable to afford the desired asking price, the amount of profit a seller receives from the sale could decrease. An increase in interest rates does not mean that the real estate market will take a negative turn, however. Property values and home prices vary depending on how strong the economy is, and these factors are both related to current mortgage rates. If the economy continues to stay strong, as it has since the pandemic, increases in salary and unemployment could help to compensate for the higher mortgage prices, therefore, a rise in interest rates may not have a devastating impact on the housing market.
Investing in Real Estate and Rising Interest Rates
If you are planning on investing in real estate, or already have an investment, increases in interest rates can have a positive effect. During periods of high inflation, property values will appreciate, and higher prices for materials, labor, etc. could cause fewer real estate projects to be developed, leading an investor’s home value to increase. If higher interest rates make it more challenging for people to qualify for a mortgage, that could cause an increase in the need for rental properties. Also, as interest rates continue to rise, fewer real estate transactions are likely to occur due to stricter lending standards, which would also cause more people to need to rely on rental properties and wait to buy a home until they can afford a mortgage. As the need for housing increases, investors can raise rents, so an increase in interest rates can result in significant profit for someone who owns an investment property.
If you have questions about how the recent interest rate increases will affect investment properties in Conyers, Georgia, contact Preferred Capital Funding today for a consultation.
