Are high interest rates and exotic home loan programs on their way back to the market? If so, should we embrace them, or are they a major threat to the real estate investing industry in America?
Like it or not, high interest rates and increasingly complicated mortgage programs are on their way back. Yes, experts have cautioned the public that this will happen for the last few years. However, last week, mortgage interest rates hit their highest point in a year. All indicators suggest it is a trend that will continue building momentum.
Measures of access to mortgage credit have varied with some types of lending loosening and others not so much. Historical cycles predict credit will ease up over the next few years. Commercial and hard money lenders are already becoming very aggressive about structuring creative deals.
Banks and mortgage giants need higher interest rates and are willing to go out of their way to make them happen, even if it means facilitating riskier loans. The CEO of the country’s largest home loan lender, Wells Fargo, cited low interest rates as the biggest risk to banking.
When high interest rates are implemented, lenders aren’t concerned about credit quality because they are aware of the collateral they will receive if borrowers neglect to pay their loan off. What they fear is putting too much money out there and being locked into low returns. Not having enough capital to compete in the market can cripple a bank when the economy makes its inevitable recovery.
While no one may love banks or their CEO’s bonus packages, what is good for banking is good for the whole economy.
For regular home buyers and income investors, this means it is time to lock in for buy and hold. Take on as much as you can with confidence, the market will keep lifting rents and property values.
Times are going to get even better for flipping houses. So grab and flip as much inventory as you can now, but take the time to develop systems and grow with the market for the long run.