Rising Rates and their impact on Real Estate
We have had a wild start to the year with the fastest growing inflation we have seen in 40 years.
CPI rose to 8.3% in April, higher than the 8.1% estimate. Shelter costs, which make up about one-third of CPI rose at their fastest pace since 1991. So what impact will this have on the real estate market?
One headline that caught my eyes this last week was that 11% of overall loans are ARM loans. The 30-year fixed-rate mortgage with balances under $647,200 increased to 5.53% from 5.36%.
Typically when rates increase, this reduces borrowing, and spending slows down. This in theory should reduce the demand side pressure of buyers which has increased the prices of homes in the last year. One fascinating fact is that homeowners made more on the equity growth of their homes than their actual incomes last year.
Inflation Resistant investing
If inflation continues to run hot we can expect to see more rate increases throughout the summer and into Q3 and potentially Q4.
As fed tightening continues to happen this will increase the rates for 30 year mortgages and will make purchasing a home most costly. We believe this will continue to drive demand in the multifamily apartment space. While there has been a migration through covid from larger cities to more affordable suburban areas, and with the continued trends of teleworking, we expect that secondary markets will continue to grow in the following years.
With home builders sometimes having to wait up to 6 months just to get a door, alongside the shortage of homes in the US, and shortage of workers to complete new housing projects, this creates pressure and demand for more apartment living.
We remain diligent and focused on creating improvements and better living experiences for tenants that improve lifestyle and bring the quality of life up to local standards. By staying focused on this approach we not only can improve the quality of living in high-demand areas, but also meet investor returns with recession resilient assets that have incredible tax advantages.
The last year at Growth Vue
We have analyzed more than $18.5 billion in real estate and have said no far more often than yes. We are starting to see some incredible opportunities rearing their head with our acquisitions team and we are in the final stages of closing a deal in Cincinnati.
We are in negotiations on a $37 million dollar deal in Kentucky and are starting to see more properties come online with prices that are more stabilized since the increases in interest rates.
Interestingly enough, requirements for placing hard-money day one as an earnest money deposit look like it is easing up and more and more offers are coming in on properties with NO hard money. With the rapid changes in interest rates, we are also submitting all of our offers with financing contingencies as rates move.
These steps will allow us to close on only the best deals for our investors. We never want to be married to a property that will not cash-flow year after year.