Simply relying on the tried-and-true processes of the past will be a recipe for investing disaster.”
inflation permanently changed the way many investors think about interest rates—and not for the better. In early 2020, the Federal Reserve dropped interest rates almost to zero in response to the global pandemic. This had a direct impact on interest rates associated with mortgages and other types of real estate loans. The rates on those loans fell to just over 3% on average in 2020 and to just under 3% in 2021. Then they jumped to more than 5% in 2022. Although the Fed continues to promise rate cuts, the borrower perspective on what that means has widely diverged from
the practical truth of what a “rate cut” really means. That 2020 butchery of rates, which was wholly unsustainable long- term and never presented as anything other than an emergency measure, simply is not repeatable. Even if the Fed keeps its “promise” (really more of a suggestive forecast) for 2025 and cuts rates at least twice, that will have little effect on a loan taken out in 2023 at nearly 7%. For investors, that means that counting on refinancing at a lower rate in 2022 or 2023 may have been a bad call resulting in insolvency. For retail buyers and sellers, that means the mortgage on the house purchased at the nadir of interest rates
will be very hard to leave behind in a move. For many, it will be impossible. Investors evaluating new markets and strategies in 2025 must factor in the possibility that interest rates may not fall or hold steady but actually rise if inflation is not suppressed in the first half of the year. If mortgage rates continue to rise along with inflation, rental owners will not be able to raise rents, developers will struggle to raise money, and everyone will experience a dearth of materials and affordable labor. Players in the real estate space who have been waiting for two years for a
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