Interest rates are on the rise, and the Fed statements of late are clearly bracing us for more to come. If you are considering buying income-producing real estate, you are most likely asking yourself how these rising rates will affect real estate prices. Here are the most common questions:
- If rates go up will prices fall?
- How will rising rates affect my purchasing power?
- Will rising interest rates mean more inventory?
- How will rising interest rates effect CAP rates?
Let’s tackle these one at a time.
Will prices fall? Surprisingly there is not a strong correlation between rising interest rates and falling real estate prices. Why? Because rising interest rates are generally tied to a strong economy, which typically sees rising or at least stable real estate values.
How will rising rates affect my purchasing power? When rates rise up a point or two, the impact can drop you out of certain markets. Consult your lender and start to understand the difference in your payment and purchasing power with a
quarter-point, half-point, and full-point hike.
Will rising interest rates mean more inventory? Buyers react to market trends. Subtle rises in interest rates will often spur buyers to get a property under contract when future rises are
on the horizon. A big jump in interest rates can have a significant impact on cap rates momentarily stalling the market while buyers regroup and rethink the commitment of buying or waiting.
Bottom line: Interest rates are still historically low, and all indicators point to future rate hikes.
If you are considering buying and concerned about interest rates, now might be your best bet for getting in the market.