With interest rates dropping, are you changing your investing strategy?

Question

Good Morning BP!

I'm sure you have all heard the good news. Interest rates have dropped to the lowest level since September of 2022! After looking at the data provided, the refinance demand jumped the highest. The total applications increased to 31.2% from 30.7% in the previous week. However, according to the data provided the market is not seeing any surge in inventory. Homes are sitting longer, do you think this will change going into spring buying season?

Are you changing to strategy to follow the trends we're seeing now? What trends are you seeing and how are you analyzing?

Manny Vasquez · Answer

Whoever needs to refinance better do it fast.  I believe the slight "dip" in interest rates will be short-lived as the FED has stated that they will continue to raise the Federal Funds Rate, albeit at a much less aggressive pace than before.  I'm thinking they will raise the rate anywhere form 0.5--.25 basis points.   Keep in mind that the Fed's #1 job is to keep inflation in-check at a targeted rate of 2%-3% Y-O-Y.  The latest inflation rate came in at 6.5%...lower than the last reading of like 8.9% or 9.1% (I can't remember but it was high) back in November or December.  The 6.5% was welcome news as this means that inflation is going down but its still above the targeted inflation rate of 2%-3%.

I don't want to be a negative Nancy but I believe we are headed towards a recession, if not, it will be a slow-cession. The Empire State Index came in at negative numbers, the 2nd month in a row this reading has been negative, which has usually signaled that we are gearing towards a recession.

We are not changing our strategy, rather, we are excited about these times.  I see prices coming down, properties sitting on the market longer which both bode well for making strategic acquisitions.

Theresa Harris · Answer

Interest rates may be down where you are from last year, but they are still higher than they have been for the last ~10 years when they were ridiculously low.  I'm in Canada where rates haven't gone down (guessing they will a little bit in the spring).  I did change my strategy when they went up and moved some money around, but I don't plan on buying any more rentals.

Reed Rickenbach · Answer

Mortgage rates are based on longer-term treasury rates which decreases with future inflation expectations.. so that fact that the FED continues to raise rates to damper inflation may be the one thing that brings mortgages rates further DOWN. Agree on prices and properties sitting.

Theresa Harris · Answer

Wait 1-2 years and people will think the current rates are normal.  In Canada rates have been low (below 3%) for about 10 years.  They are now about 5%, but the government implemented a stress test a few years ago knowing rates were going to go up.  With that, you have to qualify for a mortgage at a higher rate (currently 8%).  Our mortgages are different as we have a 25 year mortgage (for example), but every 3-5 years (can be as low as a 1 year term) we have to renew our mortgage.  So we're used to rates changing during the course of our mortgage.

V.G Jason · Answer

Investing like normal, I don't change my strategy on future rates. I buy what I believe will grow in value, and go hard at it.

Chris Seveney · Answer

@Katlynn Teague

We are not changing our strategy at all, while down slightly they will fluctuate for a while but do not see them going down significant factor for a long time

Katlynn Teague · Answer

I would agree with you, we did all see it coming. I wish you the best of luck on your new deal and I hope that appraisal comes in at the right number!

Eliott Elias · Answer

If i knew I wouldn't be posting here.

Jaron Walling · Answer

@Katlynn Teague Honestly I think everyone saw this coming. The Fed pivot will happen this year and rates will stall out or lower to a conservative 5-6% conventional fixed rate. Either way we're sticking to our numbers and market research. Interest is a lower concern. Even in this higher rate environment our properties cash-flow. It's lowered the ROI but you win slowly over time anyways.

I'm more concerned with value and ARV's. We just rented a BRRRR-ish deal and we're looking to cash-out in a few weeks $$$. We need a strong appraisal. Houses aren't moving. Less sold comps. Feels a little unpredictable.

Katlynn Teague · Answer

I agree with you completely, we will have to keep a close eye on things. Have to find the "perfect" time to buy!

With interest rates dropping, are you changing your investing strategy?

Most Popular Reply