You probably think I’m talking about affordability or maybe just the general consensus on if real estate investing is still a good strategy. Maybe you think I’m alluding to home values crashing. Or you might have thought I was talking about realtors and all the heat they are under with the commission lawsuits.
I’m talking about interest rates. While they appear to now be headed in the right direction, no one knows what bump in the road is coming up. What we know is that rates have been above 6.7% for 52 weeks. Rates have not been that high and stayed that high for that long since 2001. Sure, trends come and go. We all know real estate is a long game. And it has proven to be an excellent game to play, for the patient. This trend of higher for longer rates is likely to have long term impacts though. Trends with a year-long lifespan are more accurately described as market shifts, not trends.
So how does the future of real estate change after this kind of shift?
The most obvious driver of real estate is interest rates. They impact every aspect of the market and every type of buyer. Even if you are an extremely wealthy, serial investor – current interest rates are shaping your strategy just as they play a huge factor in a first-time homebuyer’s strategy. Well in different ways certainly, but there is bearing on both. During the pandemic we saw low interest rates fuel insane increases in home prices and contributed to historical rates of appreciation for homeowners and investors.
And now, we’ve seen higher rates drive down mortgage activity. Home prices remained high due to demand but financing certainly slowed. No one knows that better than your girl over here.
But this blog isn’t about my paychecks.
If you were concerned about my well-being though…
PCE numbers came out ok this morning. This is the Fed’s preferred inflation measure so it typically has the potential to be market moving. The reading showed inflation cooled last month and while it advanced year over year, it was the smallest gain we’ve seen this year. Real personal spending fell. We’re getting this information on the heels of a report showing that economic growth slowed in the first quarter of 2024. You’ll also remember a weaker jobs report last month. All of this information, when pieced together, tells the story of an economy that is moderating. Not taking a shit. But no longer growing at unprecedented, unexplainable paces.
I’m still refraining from spending sprees.
It’s only been about a month of good news from economic reports. By good news, I mean bad news but bad news about the economy is good news for most of us who actually know how this economy feels for the consumer. Oh yeah, and it’s also good news for interest rates. Which is good news for the real estate market. Which is the big, big – huge even - component of our GDP.
What happens next?
Back on track. Interest rates have the potential to cool. Yet after staying high for so long, where do things go from here.
I’ll refrain from pretending I have a crystal ball. If you’ve read my interest rate projections, you know this doesn’t usually go well for me. Let’s instead talk about how I would use this “higher for longer” market shift in my favor.
As a buyer I would do two things:
Sharpen my focus on opportunities. Mortgage applications are down again. This means your competition is getting frustrated with interest rates and a lack of inventory. If you stay the course, you can pick up a property right now and experience something similar to those who purchased before rates dropped in 2020.
Do you think they sat around crying that they purchased when rates were 5% and now rates are 2%? Hardly! If they still loved their house, they refinanced that shit.
Wait Shivani. What if they had to buy a smaller house because the higher rates limited their buying power and now they could have bought something better?!
Umm…they bought a house, not got sent to prison. They went ahead and moved right on up because whether they stayed or moved, everyone who bought before rates when down was celebrating their appreciation gains EACH MONTH as prices in their neighborhood went up.
I would also get very intentional about my spending. This doesn’t mean living a frugal life. It means being hyper aware of where your money is, where it goes every month and what you want – long term. Stay engaged with financial news. Look for investment opportunities even outside of real estate. I know that we’ve been saying a recession was coming since 2020 and it’s yet to materialize. Whatever comes next, it will hold opportunities. BUT, you have to be ready financially in order to capitalize on those.