Interest rates continue to climb as the Federal Reserve attempts to reduce inflation from the current 8.7% annually to their target rate of 2%. Raising interest rates is a blunt tool but it’s the only one they have. With four rate increases under their belt the results have been modest. The next few months may reveal a different story, as people begin to pull back in reaction to the uncertainty that lies ahead. Slowing the economy with interest rate hikes is like stopping an ocean liner, it takes a while.
My wife and I bought our first Redondo Beach home in 1982, shortly after getting married. The price was $160,000 and the interest rate was 16.5%! The builder offered us a stipend of $300/month for 3 years to make it more affordable. People thought we were crazy to buy at that time but I wish we could have bought 10 of them! That townhome would sell for $1,000,000 in today’s market. Smart real estate investors play the long game.
Despite the pull back of buyers, the inventory of homes for sale after initially rising modestly, has leveled off. My Realtor friends complain that there isn't very much to show the buyers they are working with.
The main reason for that is the reluctance of current owners to sell. Around 90% of US mortgage holders have a mortgage interest rate below 5%. Two-thirds have mortgages below 4%. Most will not sell to borrow at 6.3% for a new home, even if the asking price is lower than at the peak. This means there will be fewer homes coming on market which will have the effect of propping up home values.
18th century banker Baron Rothchild said, “the time to buy is when there is blood in the streets.” Smart investors buy in the down market when most people have pulled back. Markets like this come along infrequently but offer great opportunities to benefit financially.
Mark Twain said “buy land they aren’t making anymore.” Once rates return to normal, the market will come back quickly. On the fence about buying or selling? Let’s talk about a strategy to help you move forward.
