Ask Renee: What factors influence interest rates?

The topic at hand is interest rates. It's 2023. How can people not be interested in interest rates, right? So if you're in the future looking back on this video, I'm hoping they're doing much better than they are now, but we're going to focus on factors influencing interest rates in real estate. Obviously, interest rate plays a pivotal role in real estate market, whether it's influencing everything from property prices and mortgage affordability to overall health of the industry. As a prospective home buyer or seller, even a real estate investor, understanding what impacts interest rates for for real estate is crucial for making informed decisions. In this vlog post, we will explore the key factors that influence those interest rates in the real estate market. So the first one, and it is the biggest one, is Federal Reserve policies. One of the most significant factors affecting interest rates in the real estate is the monetary policy of the Federal Reserve. The Fed sets the federal funds rate, and that serves as the benchmark for for short-term interest rates. When the Fed raises the federal funds rate, it often leads to higher mortgage rates, which is what we're dealing with now. Conversely, when it lowers the rate, it can actually result in more favorable buying conditions. We are hoping that comes by the spring. Second factor is economic conditions. Economic conditions, it can include things like inflation, unemployment rates, um, GDP growth. Those all have a direct impact on the interest rates. In times of economic growth, the central banks may raise interest rates to combat inflation, which can in turn lead to higher mortgage rates. Conversely, during economic downturns, central banks may lower rates to stimulate economic activity, making borrowing money cheaper. The third one is credit markets. The health of the credit market significantly influences real estate interest rates. Lenders rely on the bond market to bond mortgage rates. When bond yields rise, lenders often pass those higher borrowing costs on to consumers, resulting in— you got it— increased mortgage rates. Conversely, falling bond yields can lead to lower mortgage rates. The fourth area of impact is the housing market conditions. The supply and demand dynamics of the housing market can impact impact— I can't talk today— can impact interest rates. When there's a strong demand for homes and limited supply, it can put upward pressure on home prices. To compensate for higher home prices, lenders may offer more competitive mortgage rates to attract those buyers and bring in more business. And conversely, in a buyer's market with ample housing supply, lenders may not need to offer the competitive advantages with their rates. The fifth area is global economic factors. Real estate interest rates are not isolated. They're influenced by global— cannot talk— global economic factors as well. International events such as geopolitical tensions or economic crisis in major economies, those things can lead to capital flows into and out of the United States. This can affect the demand for US bonds, which in turn influences mortgage rates. Probably as good of a place as any to put in, you know, even recently with the US getting downgraded from AAA rating has an effect on rates, how much it costs to borrow money. That gets passed on through the system. Number 6, government policies and programs. So government policies and programs such as tax incentives for homebuyership or subsidies for first-time homebuyers can influence real estate interest rates indirectly. Not directly, but indirectly. These policies can stimulate or cool down, you know, the housing market, affecting the overall real estate market and interest rate trends. Number 7: Lender policies. Lenders also play a role in setting interest rates for real estate. Different lenders may have varying lending practices and risk tolerance that they're willing to take on. Which can result in mortgage rate differences. Borrowers can often shop around for the best rates by comparing offers from multiple lenders. And I will say, make sure you're doing an apples-to-apples comparison, because when somebody's doing an estimate, um, there are fees as well as interest rates that you need to be paying attention to. Sometimes you might see rates lower— interest rates— and there's a fee involved in that. So always make sure you're doing that. So when you think about interest rates, again, they're obviously a critical factor in how the real estate market's going to behave. Even in a place like Naples where we are at any given time anywhere from 50 to 70% of a cash market, it still affects things. People borrow money for purchases, and when the cost of borrowing money changes, it can change how the real estate market is behaving. Behaving. There are a number of people that can afford to pay cash, but they may not want to tie up their cash. They may prefer to keep that in an investment account versus tying it up in, um, an outright cash purchase of a home. So if they're not in a situation where they need to buy today, they may wait for rates to come down. And this is somebody who's very capable of purchasing with cash and, and being debt-free. So you've got to watch for these things and make sure that understand what's going on in the macro and the microeconomics. Potential home buyers and investors must keep a close eye on these factors that influence interest rates and make informed decisions. While some factors are beyond individual control, understanding the dynamics of what's at play can obviously help making the navigation of the real estate market more effective and secure favorable financing for their property transactions. And one of the things you'll hear me say is, you know, you'll hear in the market, um, marry the house, date the rate, because the reality is we all know that people are waiting for interest rates to come down. What do you think is going to happen when those rates come down? Do you think there's going to be an influx of buyers that have been waiting to buy? And what do you think that competition does to the price of home values? So always be aware of the trade-offs and play, you know, the give and takes as it surrounds the dynamics in real estate market. The mortgage rates are one piece of that, but understand what could happen if they go up or go down and what that might do to buyer and seller behavior. Because even with sellers, if I'm a seller sitting in a mortgage right now of 3%, am I going to be running to go buy my next house at double plus that? Perhaps not. Why do you think inventory is low? Right now. It's one of the contributing factors, right? And so there's always cause and effect in trade-offs, and you've got to make sure that you're well-versed enough, or at least know the right avenues to take to go explore getting answers to make the right financial decisions for yourself. If you need any help getting lined up with a mortgage broker or a lender, please don't hesitate to reach out. I'm happy to introduce you to some of the ones that my clients have had great success with.