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Rates are on their way up…
Cash flows for property investors are about to take a hit in the coming months – and into the foreseeable future. As The Fed has recently indicated, their stimulus package has an expiration date, and it’s coming soon – possibly as early as this September. So kiss goodbye to the approximately $85 billion a month of stimulus The Fed has been effectuating of late, by purchasing Treasury bills and mortgage-backed securities in order to help keep interest rates low. And that’s just some of the sobering news property investors need to stay alert to in order to plan your investment strategies intelligently. Add to this the fact that 30 year mortgage interest rates have been slowing ticking upwards over the last several weeks, and you’ll soon realize the bottom was reached on the interest rate front – and it doesn’t look like it’s going to return any time soon. Many national economists are predicting overall mortgage rates to increase on a steady trajectory through the end of this year.
Rates are going up for several reasons
I have reported here in recent articles that the current housing rebound is due mainly to property investors, especially a few incredibly large hedge funds that specialize in property investment. And I have noted that consumer confidence remains not altogether strong, as the jobless rate limps along, barely creating the necessary rebound to seriously improve job confidence. This yields a static situation where people are still fearful about their employment – at least the ones that have jobs. It still remains quite difficult placing job hunters in available positions nationwide. And this ultimately continues to erode consumer confidence, and keeps many potential homebuyers on the sidelines. Thus, it’s still a great position to be a landlord to provide housing for all the fence-sitters who continue to rent, thus pushing rental prices up.
Banks are flexing their muscles
So it is property investors who continue to prop up the housing market and mortgage industry – investors comprise more than 20% of all home sales in the past year. With all this activity, and with unemployment remaining at least steady, lenders are now flexing their muscles, figuring it’s finally time to start ratcheting interest rates up. After all, they see the numbers: the average time homes are on the market nationally have dropped considerably this year – from 100 days down to 60 days on average. And nationally, home inventories have been dropping from about a six month supply down to about four and a half months. So it would be wise for any property investor who was considering making their new-buys later in the year, to heed this news – interest rates will only be considerably higher by winter. Best to lock your deals up sooner rather than later if you’re going to be financing with an investment property mortgage loan. Your cash flows will thank you.
photos courtesy of realtypin.com, kstp.com, realtybiznews.com, forbes.com