In 2024, real estate investors face a challenging landscape marked by fluctuating mortgage rates, a condition influenced by broader economic factors and Federal Reserve policies (quantitative tightening). Understanding how to navigate this volatility is crucial for maintaining profitability and strategic growth in your real estate portfolio.
Current Mortgage Rate Trends
Mortgage rates have shown significant fluctuations throughout 2020 and into 2024, with historic lows followed by a notable rise to 23-year highs in October 2023, and several ups and downs for most of 2024. As of July 2024, rates have somewhat stabilized but remain high by historical standards. The 30-year fixed-rate mortgage, for example, stands at 6.78%(this is the owner occupied benchmark- NOT the same as for investment property), indicating a slight increase over recent weeks. This stability, however, is tentative, with market conditions and Federal Reserve actions likely to influence future rate movements. My advice is don’t fight the Fed! Instead listen to what they are saying; (Semi Annual monetary policy testimony). I’m hopeful for 1 or maybe even 2 rate cuts this year.
Impact on Buying Power
The volatility in mortgage rates directly impacts the affordability of properties and the overall buying power of investors. Higher rates generally lead to increased borrowing costs, which can diminish buying power and cool down purchasing activity, as seen with the recent slowdown in home sales despite the stabilization of rates. Investors need to remain vigilant and responsive to these shifts to manage their capital and investment strategies effectively. And in any market that means diversification. As real estate investors we must maintain a diversified portfolio that will allow us to weather any market. That means having a healthy portfolio of differing tenant types; long term, mid term and short term. Looking at 2-4 unit properties in lieu of SFR and vice versa.
Strategic Refinancing
During periods when mortgage rates dip, as they have from their peak in late 2023, refinancing existing properties can be a savvy financial move. Refinancing can potentially lower your interest costs and improve cash flow, which is vital in a high-rate environment. However, timing is crucial, and decisions should be based on thorough analysis and projections of rate trends. And you can always look to alternative types of financing like my favorite product the All In One first lien heloc.
Long-term Planning
For new investments, locking in rates during dips or opting for mortgage products that offer rate stability can be beneficial in a fluctuating environment. Fixed-rate mortgages might be preferable during periods of low rates to guard against future increases. Conversely, adjustable-rate mortgages could be advantageous when rates are projected to decline. The choice of mortgage product should align with both current market analysis and long-term investment goals. While I am in general of an ARM, especially for investment property purposes our current inverted yield market, precludes those from providing the necessary benefit. So until that market condition corrects ARM’s in most cases are off the table
Conclusion
Navigating mortgage rate volatility requires a proactive and informed approach, incorporating regular market analysis, strategic financing decisions, and adaptive investment strategies. By staying informed and agile, real estate investors can not only weather the challenges of rate fluctuations but also capitalize on opportunities they present.
For investors seeking to adapt their strategies in line with current mortgage rate trends, or those just starting in real estate investment, Ridge Lending Group offers expert guidance and tailored financing solutions. Start your application today by visiting RidgeLendingGroup.com or calling 1-855-747-4343 to explore how we can help you achieve your investment objectives in this dynamic market.
