With the pandemic in the rearview and the economy beginning to stabilize, many Americans are considering their next financial move. Investing in real estate is a great option for diversifying your financial portfolio. However, record-high interest rates remain an area of concern, especially for new investors.
While the Fed did lower interest rates in early 2024 and there are rumblings of further reductions, the current economic climate has been a roadblock for some investors. Mortgage payments are a lot higher than they would have been three years ago. So, if you have the cash and the inkling to invest in real estate, should you wait for interest rates to go down?
Our answer is: No, don’t wait.
Why? For one, the sudden hike in interest rates was a once-in-a-generation tactic used to thwart an impending recession. Now, due in part to a strong labor market, experts are predicting a ‘soft landing’ for the economy. Therefore, it’s safe to say that interest rates are not likely to go up any time soon. Rather, they are predicted to go down.
The purchase or sale of one’s personal residence is a big decision and for most people the equity in their home represents their single largest asset. Needless to say, buying a home is a life-changing decision that must be made thoughtfully. Buying and selling homes is most often based on major life events. People typically buy homes when they get married, expand their family, become empty nesters, retire, etc.
These life changes happen regardless of interest rates. If you’re in a position to invest in real estate, now’s as good a time as any. If the experts are wrong and interest rates go up instead of down, you still win if you have made the right investment. If rates go down (and again, it’s likely they will) then you can always refinance your property at a lower rate.
What if you’re not ready to invest in an income property but rather your first, single-family home? Should you wait for rates to drop? Again, the answer is no.
Most people’s single biggest asset is their primary residence. Higher interest rates means that you have to reevaluate what you’re willing to pay. Since your home is also your biggest investment, it’s okay to stretch a bit and get a house in the best area that you can comfortably afford. Let us reiterate the phrase comfortably afford. That’s the key here.
Many home buyers stretch their finances beyond the comfort zone. Sadly, they fall into what’s known as being “house-poor”, meaning they can make their mortgage payments but don’t have money for much else. Worse, some end up losing their home because it was more financially taxing than they anticipated. Remember, your mortgage is just one of the many expenses that come with owning a home. There’s insurance, taxes, utilities and repairs. All of these expenses add up.
However, pushing yourself out of your comfort zone may allow you to improve your living situation while also maximizing equity gains in your most valuable asset.
Bottom line: Don’t wait for the Fed to lower interest rates if you can afford to buy now.
And to those who are not yet able to make a move into real estate, don’t beat yourself up for ‘missing the boat’. Every market presents its own opportunities.
Think you’re ready to invest in real estate? Take the next step by ordering your copy of Destination Perpetuity to help you through every part of the process.