A 10-15% property price increase requires an average decrease in interest rate of 1-2%. And history has shown us that you're likely to be waiting for at least 3 years for even a 1% decrease.And in that time, in competitive markets, price increases happen even without the lending market shifting. And just with simple math, the lower the purchase price, the less impact a decease in interest rates will provide.Unfortunately, we tend to only think about interest rates when we need to use them. And the funny thing is, it’s a hurdle when they’re high, and it’s even a bigger hurdle when they’re low, as even the mass uninformed try and take advantage. When the 2008 financial crisis hit, and the pandemic inspired interest rates of 2-3%, the last thing people were thinking about was establishing “permanent” roots. But to no surprise, the ones that "took advantage" feel fortunate and the ones that didn’t have 20/20 hindsight, wish that they did. It seems like an easy decision then, but it certainly wasn't because no one knew if the housing and lending market would recover post 2008 and if the world would return to the one we know now during the everyday of COVID. The truth is, life always go on, our kids grow up, we need more space, we search for schools and for most people, ownership is the strongest investment and savings opportunity they have. The challenge is that most buyers focus on affordability. But when it’s more likely you’ll be priced out on the neighborhood you’re looking at, how can you afford not to take action when most others hesitate.The purchase must be pursued as a net positive outcome with the absolute goal of finding or selling the home that allows you to move forward in life and your real estate portfolio.Just like anything that is worth achieving, real estate is not a lottery, it takes preparation, identification, effort and decisiveness. Now for buyers, here's how you do it:Interest rates up? That means property prices will be a bit lower (or a lot lower), and will provide a lower tax basis and built in equity as a result.How do we take advantage of that?Adjustable rate mortgages. Choose 5 or 7 year options, which typically provides a 1% lower rate. And if the interest rates do not go down in that time, and you’re stuck with the prevailing rate?The amount you owe on the home, will already be less than when you started, so your monthly payment will be relatively similar to the day you closed.Sound familiar? That’s because the above is just like your lease payment - which often increases year over year for no reason at all. The big difference is: increased costs on ownership while equity is building is part of an investment, versus a pure line item expense that is merely money out.On the sell side, we talked about it here.Real estate does not happen by chance.There is opportunity in every market scenario, it just takes understanding and guidance to ensure you take full advantage to become the envied.
Why Chasing Interest Rates Are A Bad Idea
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