Mortgage rates are very high and it negatively affects property investments. Low mortgage rates encourage investors to buy properties and when they are high, investors drop out of the market. High mortgage rates are related to high property prices too. Presently, in the third quarter of 2022, investors are not interested in buying new properties. According to a survey, the trend of property purchases has reduced by 30% over the past few years. Sometimes it’s not about the mortgage, every investor doesn’t use a mortgage to buy property. However, they don’t want to buy in an unstable market.
The housing market crashed a few years back, it’s not the situation now but it’s the biggest decline in the house purchase trend, after that. During the pandemic, the situation was not good for the housing market, but it is worse than that. Markets in Portland, Las Vegas, Atlanta, and Miami are affected badly. They were hottest during a pandemic, but now property prices and sales are Declining here.
What is stopping investors from buying properties?
The majority of investors buy investment properties, as they want a source of passive income. However, in present conditions, buying an investment property is not a good idea. Investors are jog interested in buying and there can be multiple causes for this trend. Here we are discussing some.
High mortgage rates
High mortgage rates are one of the various reasons, which is stopping investors from buying new properties. Inflation is increasing day by day in every sector. To mitigate the effect of high prices, government agencies have to raise interest rates. It helps to keep a balance between consumer demands and the supply of goods and services. Another factor that needs to be controlled is borrowing. When interest rates are high, borrowing becomes very difficult. Credit card exchanges become very expensive and mortgage rates also increase.
During the pandemic mortgage rates were all-time low and many new investors entered the real estate market. But now the pandemic is over and property prices are very high. The situation leads to high mortgage rates as well. Experts had predicted that mortgage rates will be around 5% at the end of this year, but the war was not part of their analysis. The war has increased inflation rates and mortgage rates are also increasing. There is no sign of a reduction shortly.
Weak real estate markets
Real estate markets are not strong these days. Investors buy properties to make money. But when real estate markets are weak, they hesitate to invest. No one wants to lose his hard-earned money in an unstable and weak market, so they wait for the market to get strong again. Every investor wants a good return on investment, no matter whether he has taken a loan or he has brought home by paying cold cash. Property prices are dropping in many markets and in such a situation the purpose of buying an investment property cannot fulfill. For instance, in Phoenix, the average property price was $664,000 but in November it dropped down to $571,000. Similarly, in Portland, it was $683,000 and now it’s $578,000.
Inflation
The third important factor, which is stopping investors is inflation. Inflation was 7% high in 2021. But after the war, inflation increased at a fast pace, and in march 2022, it was 8.57%. In June, it was recorded highest at 9.06%. However, now it’s reducing but at a very slow pace. In October, the inflation rate was recorded at 7.75%. It is the lowest rate of this year. Inflation rates affect everyone and it affects investors too. They need to spend not only on the property but on other goods and services too. These goods may be related to their investment and maybe something else. As inflation increases, they have to spend more money, which they could have used for investment.
Is it a good idea to invest in real estate now?
In the Present situation, every investor asks the same question, is it safe to invest in the real estate business or not? The answer to this question depends on different variables. The most important is your plan for property investment. Investors are not investing in real estate because most markets are weak. This situation is alarming for investors, particularly those who are more interested in house flipping. Investors who invest with a flipping strategy are hesitant to invest, they have no idea whether they should invest or stop for now. A lot of money is required to buy a house and then remodeling and renovation are additional expenses. After that marketing and listing also need money.
Property prices are declining now and it can be a great loss for investors. If they sell a house without any loss, it will be considered good luck. On the other hand, investors, who deal with rental properties are in a better position as compared to house flippers. Rental property owners can hold their properties and wait for a better market situation. They get monthly rent and a steady cash flow.
Like prices of goods, rental rates are also increasing. Property owners adjust rental rates according to the situation. The rental rate should be reasonable, affordable for tenants, and fair enough to sustain the business. The principle is the same for long-term and short-term rentals. The rental business is profitable if you keep your units in good condition and communicate with tenants. If the turnover of tenants will increase, your profit will decrease. If you are earning well with rentals, there will be no need to sell the property and you can avoid problems like high mortgage rates and inflation. If you want to invest in real estate, at this time, the rental business is better than all other options.
Verdict
Presently, investor home purchases are down but real estate is a good investment even now. During high inflation, real estate is a profitable business. However, you should buy properties very carefully. If you are planning a rental business, buy according to that and you can generate a steady monthly income.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
