Navigating Interest Rate Hikes

Interest rate hikes throughout 2022 have had a dramatic impact on the real estate market. There are buyers who view this as a buying opportunity, and here’s why.

As a threshold matter, there is rarely a “bad” time to buy real estate. Since the late-2010s, there were groups predicting a real estate correction. In late-2020 and 2021, many buyers were sitting on the sidelines – despite record low interest rates – because they perceived properties as overpriced. Now, when prices are starting to level – but interest rates are increasing – some buyers are sitting on the sidelines because of those rates. There will rarely be a “perfect” time to buy real estate, and continuously focusing on solid, cash-flowing, assets is key.

Generally, interest rate increases = price decreases/leveling, while interest rate decreases = price increases.

This concept is sensible because interest payments comprise a large amount of monthly loan payments, and thus directly impact whether a buyer can afford those monthly payments.

Now that interest rates have increased, should you just wait until they decrease to buy real estate? Well, consider the two possibilities, at their simplest form.

• Scenario #1: You buy real estate and lock in a 7% interest rate and interest rates increase.

You locked in a lower than market interest rate.

• Scenario #2: You buy real estate and lock in a 7% interest rate and interest rates decrease.

You may have paid a lower purchase price because of the high interest rates, and now you can refinance into a lower interest rate.

In both scenarios, you are realizing other benefits of real estate – detailed more fully here – including cash flow, appreciation, mortgage paydown, hedging inflation, and tax benefits. Now, real estate prices are beginning to level. While we should not expect a real estate crash, as detailed here, now is the time to take advantage of less buyer competition and purchase professionally vetted and cash-flowing property.