For real estate investors, the latest Fed meeting had more bad news than good news.
The bad news is that interest rates will remain unchanged. The good news is that inflation has declined (to 3.3% in May from 3.4% last month). Now, it is must It’s only a matter of time before the Fed follows in the Fed’s footsteps (probably July or September) bank of canada and European Central Bank and began to cut interest rates.
Most homebuyers and investors are well aware that the Federal Reserve has chosen to keep the federal funds rate steady for nearly a year in response to rising inflation and better-than-expected economic performance. By keeping interest rates unchanged, the Fed Trying Striking a delicate balance to achieve a soft landing by lowering inflation enough to avoid a recession and then lowering interest rates to stimulate the economy. If the Fed cuts interest rates too quickly, they worry it could spark inflation again.
In fact, inflation remains more than a percentage point above the Fed’s 2% target, and many investors are wondering whether the Fed’s stance will lead to a rate cut this year. The Fed said in its latest statement that it would now cut interest rates once. For mortgage holders, a 25 basis point drop is insignificant and won’t have a big impact on most people’s loans. However, this could be the start of some big events next year and even 2026.
First rate cut likely in September
“this [the lower inflation number] is a very encouraging digit” Laurence Meyer, a former Fed governor who runs an economic consulting firm, told the Wall Street Journal wall street journal. ‘I need to see more before cuts are made, but I think September is working’ first class cut.
Federal Reserve Chairman Powell said in a Q&A after his speech on June 12:
“The best thing we can do for the housing market is lower inflation so we can lower interest rates. The fundamental housing shortage remains. We’ve made considerable progress on inflation. We need to see more Good data. We want to remain confident that inflation will fall back to 2%.
With mortgage rates hovering around 7%, many potential homebuyers are still forced Walk around the track for a while. At the same time, investors are eager to Refinance Those who had their interest rates lowered are holding on, while others whose loans have been readjusted have been forced foreclosure,there are more.
“With interest rates just below 7%, we expect Slight decline for remainder of 2024”, Sam Khater, chief economist at Freddie Mac, told Money. New York Times. “If potential buyers are looking to buy a home this year, waiting for lower interest rates may save a small amount of money, but it’s still very beneficial to shop around for the best rate.”
The role of job number
Last week’s May jobs report also played a role in the Fed’s decision to keep interest rates on hold. Interpreting the implications of this role is controversial, however, as the numbers send mixed signals.
Employment growth exceeded expectations, supporting the Federal Reserve’s argument for keeping interest rates unchanged. However, the unemployment rate also rose to 4%, which despite being historically low, still supports the argument for a rate cut. Faced with headwinds, the Fed believes it is the safest bet not to take any shocking action for the time being. If employment rises next month and fewer new jobs are created, the case for a rate cut will be only Become stronger.
Risks posed by long-term high interest rates to banks
When interest rates are high, people don’t borrow, save, or deposit, and mortgages go into foreclosure. The Fed’s “long-term interest rate hike” stance is painful for banks and their customers.
Banks can indeed be hurt once customers start withdrawing cash from savings and checking accounts to pay for living expenses, or because they fear the bank may be in trouble, as we’ve seen from recent events signature bank and Silicon Valley Bank. For investors, this means loan cash will no longer be as easy to obtain and lending standards are likely to increase.
In a question and answer session after his speech, Powell said he believed the banking sector had stabilized after last year’s panic. However, keeping interest rates high will only add further pressure on lenders and borrowers, which must be considered.
What real estate investors can do now to prepare for potential interest rate cuts
One basic thing investors should do doing Are you ready to borrow money again? make sure Their credit score as high as possible and That Their debt to income ratio Good for lenders.
Additionally, investors who currently own multiple properties should take stock of these properties That is Properties that are performing well and those that are not, the equity available for each property, and current interest rates, and decide which properties they can sell Chapter 1031 Exchange What should they keep. Maybe it’s worth it Get an assessment Introduce potential buyers to expedite the sales process.
Investors with good credit and equity should also consider obtaining HELOC and a business line of credit to prepare for the purchase and begin renovations. However, for sale now it could be a prescient Move for investors Who is at their end tether And couldn’t hold on any longer. A rate cut is coming, and when rates fall next year, buyers may be more inclined to buy before a potential stampede occurs.
final thoughts
The Fed’s announcement did little to ease concerns among people saddled with high levels of debt. Everything is much the same. Home sellers are likely to maintain low interest rates through 2021, while borrowers whose interest rates have adjusted are likely to maintain low interest rates through 2021. pray Because some rays of hope remain hopeless. High interest rates will strain inventories in major marketshouse prices also rose.
“The urgency of paying off high credit card or other debt not reduced” Greg McBride, Financial Analyst at Bankrate, Tell New York Times. “Interest rates go up by the elevator but go down by the stairs.”
Unfortunately, this means the waiting game continues.
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