The goal of hiking interest rates is to increase the cost of borrowing throughout the economy. Increased interest rates mean that consumers and businesses have to spend more on the payment of interests, making loans more expensive.
If your mortgage doesn't have a fixed interest rate, you will probably notice an increase in your monthly payments, and with the current inflation rate, most people will no longer be able to make mortgage payments. As a result, they will opt to sell their homes, creating a massive supply in the market.
Additionally, the interest rates will lead to an increase in new mortgage fixed rates to about 6%, thus, lowering lower property demand since most people cannot qualify for the loan. Consequently, investors and homeowners will be compelled to reduce prices for their properties.
With a recession on the horizon, it's predicted that retailers will reduce prices while employees take a pay cut, and this has already begun in ad sales, law firms, and the mortgage sector. Employees who have a mortgage or live in rentals are more likely to move since they will have more difficulty finding or retaining a job in their current city. Thus, not being able to pay their rent or mortgage. At that point, the properties these employees reside in will most likely get foreclosed and then auctioned off.
However, if you buy property in cash, you won't have as much competition from people seeking a mortgage, and, since you're not seeking a mortgage, you might be able to bargain with the seller. In addition, the increased rates mean that mortgage lenders will earn more money as interest. However, the reduced demand for a mortgage will adversely affect these companies.
If the Federal Reserve continues increasing interest rates, the real estate sector will experience challenging times. The fed rates may not affect all aspects of your financial world, but understanding the monetary policy changes may be an excellent way to keep your finances in order.
If you are an investor in the real estate sector, ensure you handle the fed interest rates with care. Besides, diversifying your investment portfolio may be an excellent way to reduce the impact of interest rates on the real estate industry. If our economy grows rapidly, rising interest rates won't be as destructive if the wages and salaries grow correspondingly.
Before taking a mortgage, remember to consult an expert. Fixed-rate mortgages may not be significantly affected by interest rate fluctuations as adjustable rate mortgages.
Whether you are an investor or a prospective property owner in Florida, having legal counsel is the best way to ensure your interests are protected.
At Atlantic Coast Title and Escrow, we are committed to helping you make the right real estate purchase or sale decisions. Contact us today to schedule a consultation with a Florida real estate attorney.