As we witnessed this past month, the Federal Reserve passed their second federal fund rate increase by 50 basis points (0.5%) to counteract rising inflation.
So, let’s go back to the basics by explaining what the federal fund rate is and why is it increasing? The federal fund rate is the rate by which banks borrower money. This rate implemented by the Federal Reserve and any fluctuation positive or negative always trickles down to us, the consumers.
The Federal Reserve uses the federal fund rate as their primary tool to balance the market. So, to counteract the rising price of goods and inflation the Feds increase the federal funds rate. Over the past few years, we have enjoyed record low rates allowing consumers to buy more in a highly competitive market. With no surprise, inflation has been on the rise for quite some time and will continue until the market and supply and demand level out.
So, how does increase interest rates and rising inflation benefit real estate investors and long-term real estate investments?
Appreciation has been every investor favorite word and has been the driving force to making a higher return on investment. Housing prices and value will still experience rising appreciation for the reminder of year because the American people are still experiencing a housing shortage. The demand for single family homes continues upward and due to short supply on materials and rising labor costs, the housing market supply will not be in a homebuyer’s favor.
Rising rents is another result of inflation and low housing supply. Occupancy rates for multifamily continue to be on the rise. So, investors have been chomping at the bits for these properties and for good reason. Multifamily and long-term investment properties give investors the opportunity to stabilize rents and create positive passive income. For real estate investors, rising rents means generating more revenue.
Over these last few years, homeowners and investors were locking in record low fixed-rate mortgages. The positive outlook continues to be, we are still experiencing lower rates than pre-pandemic. For those that are locked into fixed-rate mortgages, your payments will remain the same while your asset value grows and if you’re a landlord, rising rents provides more wealth.
In a time of uncertainty from rising interest rates and inflation – the long-term real estate investment market continues to preserve inflation and provide stable income. Coastal Equity Group continues to provide a variety of lending solutions for every strategy.