Mortgage Rates Continue to Drop Signaling a Good Time to Invest in Real Estate | Morris Invest (2024)

FAQs

Is real estate a good investment when interest rates are high? ›

Some investors might see a rise in interest rates as a reason to hold off on investing in a property. However, investing in real estate in a rising rate environment can be good. People will always need housing, and even if the market conditions aren't ideal, people will need to rent out a home or apartment.

Key risks include bad locations, negative cash flows, high vacancies, and problematic tenants. Other risks to consider are hidden structural problems, real estate's lack of liquidity, and the unpredictable nature of the real estate market.

When mortgage rates begin to drop, buying a home typically becomes more affordable. "Should rate cuts occur in 2024, homebuyers may qualify for larger loan amounts or find that their monthly payments are more manageable," says Neil Christiansen, branch manager and certified mortgage advisor with Churchill Mortgage.

A high-interest-rate climate gives you less buying power, so buyers who opt to wait for lower rates may find themselves able to afford a higher-priced house, due to the lower mortgage payments. But there's no guarantee that rates will actually go down.

The bottom line. Today's elevated mortgage rate environment isn't preferable for homebuyers, but it doesn't mean that you should refrain from acting, either. If you discover your dream home, can afford the interest rate, find an affordable house, or have an alternative to rent, it can be worth it for you now.

Key Takeaways. Higher interest rates have gotten a bad rap, but over the long term, they may provide more income for savers and help investors allocate capital more efficiently. In a higher-rate environment, equity investors can seek opportunities in value-oriented and defensive sectors as well as international stocks.

So while buying a home continues to be an infuriating experience, marked by high prices, high interest rates and low inventory, renting an apartment is getting easier. That means that unless you plan to live in a house for the next decade or so, now may not be the best time to buy it.

In summary, it is unlikely that mortgage rates in the US will ever reach 3% again, at least not in the foreseeable future.

In its latest U.S. Economic Outlook, the Economics Group of Wells Fargo Bank puts the 30-year conventional mortgage rate at 7.05% in the second quarter of 2024, declining to 6.5% by the end of the year. Wells Fargo economists predict that the average rate will dip below 6% in the fourth quarter of 2025.

What will interest rates look like in 5 years? ›

ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.

Those who are waiting for mortgage rates to drop before buying a house will likely be on the sidelines while home prices continue to appreciate, and falling rates could push prices even higher.

Mortgage rates are expected to come down in 2024, and inventory and home sales are likely to increase. Homebuyers and sellers can also expect prices to continue to rise, albeit at a slower clip than the past couple of years.

And as you might imagine, recessions are a risky time to buy a home. If you lose your job, for example, a lender will be much less likely to approve your loan application. Even if the recession doesn't affect you directly, if your area is hard-hit, that could have a serious effect on the local real estate market.

Rising mortgage interest rates often mean a smaller pool of buyers who can afford the price you want. Selling a home isn't free, so if you can't maximize your price, you might want to wait. If you recently refinanced your mortgage, it may not make financial sense to sell just yet.

A higher interest rate means higher mortgage payments, making it more difficult for buyers to qualify for a mortgage or afford the home they want. For example, when a homebuyer wants to purchase a $300,000 home with a 20% down payment and a 30-year fixed-rate mortgage.

The costs of owning a home can be more stable compared to rent prices. Your mortgages may be fixed for up to 30 years, while the rent price for a unit could increase with each lease renewal. Homeowners may also have more protections and options than renters do if they find themselves struggling financially.