In a much-anticipated move, the Federal Reserve opted to leave the nation’s interest rates unchanged, bucking the trend of gradual interest rate hikes that we’ve seen in recent months. The vote came in the last week of July, leaving real estate investors breathing a collective sigh of relief. The Short Sale Gal Kristine Zelazo will take a look at precisely what this means for those in the real estate investing field and what’s expected on the horizon in terms of interest rate changes.
Why Did the Fed Decide Against an Interest Rate Hike?
2017 has seen several interest rate increases, the most recent occurring in June. The plan has been to gradually increase rates in an effort to reduce inflation and slow buying activity. The U.S. Federal Reserve uses the interest rate as a tool of sorts, since the economy slows when rates rise, and buying activity picks up when the interest rate decreases since this makes it more affordable to borrow money.
Notably, lenders have been a bit slow to respond to these interest rate hikes, which many surmise is part of the reason why the Fed opted to hold off on an increase. Typically, when interest rates increase, lenders increase their interest rates in response. But this hasn’t occurred to a degree that is typical, so maintaining a stable interest rate ought to be beneficial since it will give lenders and the economy as a whole time to adjust to the new rates.
The past year and a half has seen a series of small but significant rate hikes that have many investors and borrowers alike groaning. In December 2015, the Federal Reserve rolled out the first interest rate hike in almost a decade. This resulted in an increase from the near-zero rate to .25%. The most recent increase occurred in June 2017, when we saw a rise from 1% to 1.25%. That represented the third increase to the Fed’s benchmark interest rate in six months.
How Do Interest Rates Affect Real Estate Investors?
Interest rates impact real estate investors in a few ways. While investors typically do not take out a mortgage on a property, it is not uncommon for an investor to borrow money for a period of time. Even private hard money lenders may charge a bit more in terms of interest for short-term loans. The reason? Well, if the lender had left the money in the bank, it would be accruing interest (and notably, interest rate increases are a good thing for those who earn interest on their savings!) But instead of leaving the funds in the bank to accrue interest, they’ve lent that money to you, an investor. So the lender must charge a bit more to compensate for what they would have otherwise been earning in interest.
The real estate industry as a whole is perhaps the most dramatically impacted by interest rate increases (and decreases). Over the life of a home loan, a fraction of a percent can translate into tens of thousands of dollars, so there is a major effect on borrowers who are seeking to buy a home or refinance. This, in turn, impacts sellers and investors.
But this latest news out of the U.S. Federal Reserve is good news, since they opted to maintain the current interest rate of 1.25% rate.
While it’s possible that we could see another increase in the coming months, economists generally agree that the next and (perhaps last) interest rate increase of 2017 will occur in December.
Need Help Getting Started as a Real Estate Investor or Rehabber?
Interest rates are just one part of the very complex real estate investing equation. Whether you’re starting out as a wholesaler, or prefer to focus on rehabbing projects and fix and flips, it takes a lot of skill, knowledge and leads to succeed. That’s where you can benefit from working with an experienced industry professional like The Short Sale Gal Kristine Zelazo, an experienced investor, negotiator and founder of The Bird Dog Program.
Through The Bird Dog Program, Kristine offers mentoring and guidance to new and even experienced investors who are seeking to make money (or make more money) investing in real estate deals, including foreclosures and short sales. In addition to working with her program participants on joint ventures, Kristine also serves as a consultant to real estate investors and other real estate professionals who are in need advice and guidance.
Kristine Zelazo also works directly with property owners who are seeking to sell their home. 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. Questions? Call 800.664.0616, x802.