On May 4th, 2022, The Federal Reserve announced that short-term interest rates would increase by 0.50% to combat inflation and stabilize the economy post-pandemic. The rising interest rates have broken records and have had a noticeable impact on the real estate market, particularly for investors.
This is nothing new. Interest rates have historically been reduced to support an ailing economy by stimulating growth. It’s what happened during the recession and when the Covid-19 pandemic first hit. The downside was inflation, which increased interest rates, so businesses and people didn’t have to borrow money for large purchases.
What Rising Interest Rates Mean For Investors
When interest rates rise, houses become more expensive, and naturally, their demand reduces as well. In turn, this forces housing costs to decrease as well. However, the existing market is a bit different – there has been an increase in housing costs because of the following reasons:
- Foreclosures impacted by the Covid-19 pandemic.
- Millennials are old and established enough to afford homes.
- Not as many single-family homes as there used to be because of labor shortages and supply chain problems.
Experts believe that while short-term investments are risky, investors can still look into long-term options that can provide better gains. You can withstand inflation with a property that can act as a source of income a few years later.
What Multifamily Investors Should Consider
You can go for a fixed rate when you refinance an apartment or buy a multifamily property, but you should look into other factors besides interest rates. These include:
Shifts in demographics
Demand is outpacing supply in the housing market as interest rates rise. However, as the economy recovers, more people may move into the cities from the suburbs. This can be a new market for you to tap into as an investor, including individuals looking for housing near their workplaces.
The local market
Real estate is mostly a local business, so look into your niche before refinancing or buying. Also, consider each property’s capitalization rate – these rise with interest rates.
The existing financing structure
Short and long-term loans may be affected by rising interest rates. Consider factors that affect mortgage rates, such as a 10-year treasury lead. These yields reflect investor sentiments on the economy. Rising yields may point to higher inflation rates and vice versa.
As interest rates rise, knowledgeable and proactive Illinois real estate attorneys can help you determine a solid plan of action regarding your real estate investments.
Contact Covert Legal for a Consultation Today
For more than four decades, the Illinois real estate attorneys at Covert Legal in Warrenville have been aiding real estate investors, and other clients reach their goals. We have experience preparing contracts, and negotiating sales for homes, vacant lands, and even commercial property. We have also represented clients in court for boundary disputes, title disputes, and other issues.
Contact us for a consultation today at (630) 717-2783!