The U.S. Federal Reserve has increased interest rates, which means that homebuyers and homeowners seeking to refinance can expect to pay a bit more. So why do interest rates increase and how will it impact the real estate investing industry as a whole? That’s exactly what we’ll explore in today’s article from The Short Sale Gal Kristine Zelazo.
Why are Interest Rates Increasing?
The U.S. Federal Reserve adjusts interest rates as a mechanism for promoting or restricting economic growth. For example, if the economy is heading toward a state of inflation, then interest rates will be increased to help slow buying activity. Conversely, if the economy needs a bit of a jump start, the Federal Reserve can reduce interest rates to help promote spending and other economic activity.
This most recent interest rate increase of 0.25% brings today’s interest rate to 0.75%.
Notably, in December 2015, the Federal Reserve announced the first interest rate hike in nearly a decade, which brought the near-zero interest rate to .25%. Since then, it has increased a bit to the current rate of 0.75%.
The Federal Reserve has indicated that it expects to raise rates three more times in 2017, ultimately increasing rates to 1.5%. The plan is for the gradual rate hikes to continue, reaching 2% in 2018 and then to 3% in 2019. Even with these interest rate increases, the rate is still comparatively low when you look at the historical record. The early 1980s saw interest rates topping 20%, while the late 1980s and early 1990s saw rates around 10%.
Is the Interest Rate Increase a Bad Thing?
Of course, increased interest rates aren’t necessarily a bad. An interest rate hike is positive in that it signals that the economy is in good condition.
While you can expect to pay a bit more on interest rates on credit cards and loans, such as mortgage loans, individuals who earn interest off their savings can expect to earn a bit more.
For the real estate investing and short sale niche, increased interest rates can mean an uptick in activity. Refinancing and new home loans become pricier and less appealing, resulting in a higher number of short sales and distressed properties.
In some cases, the higher interest rates may prompt individuals to sell if refinancing is not an option. Others may end up facing a short sale or foreclosure.
Since a large portion of real estate investors deal in cash transactions, they are largely unaffected by interest rate hikes. What’s more, the higher interest rates mean borrowing money is more expensive, so the number of end buyers (individuals who get a mortgage and plan to actually live in the home) is reduced somewhat. This means a bit less competition for properties.
Ready to Get Started in Real Estate Investing?
If you’re getting started in real estate, consider working with a real estate investing mentor like The Short Sale Gal, Kristine Zelazo. Getting started in real estate investing can be somewhat challenging, but when done right, you can stand to make significant profits. You’ll have lots of advantages in this regard when you work with a real estate investing and short sale expert like Kristine Zelazo, better known as The Short Sale Gal.
Kristine has even launched a new program, called The Bird Dog Program, which is designed to help individuals get involved making money on real estate deals and short sales.
Based in Florida, Kristine works with both buyers and sellers and she is an experienced negotiator. So if you’re an investor seeking to get started in buying short sales and need a great mentor or wish to pursue a short sale transaction for the sale of your property, turn to Kristine Zelazo, the Short Sale Gal!
To get started with selling your home, simply complete the home pre-sale form to provide Kristine with additional information on the property in question. Then, call 800.664.0616, x802.