Rate Hike: Great for Those with Investment Liquidity

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Rate Hike: Great for Those with Investment Liquidity

The fight against inflation, central banks, and interest rates

The FED, ECB, and other central banks have initiated a series of interest rate hikes never seen before. The "desperate attempt" (according to some) to tame inflation has brought the cost of money to record levels. In the United States, the FED rates reached a level between 5.25% and 5.50% in July, the highest in 22 years.

Consequences on the US real estate market

All of this has significant consequences, especially for those looking to invest in real estate, as US mortgage rates surged to over 7% in August (7.23% for a 30-year fixed-rate mortgage). As expected, this led to a decrease in mortgage applications, with a -2.9% drop in the first week of September and an additional -0.8% decline in the following week, as reported by the Mortgage Bankers Associations (MBA). Essentially, those who could have purchased a home with the interest rates of 1 or 2 years ago are now forced to wait for a more favorable moment and continue renting.

If in any other country this would have led to a real estate market crisis, one must consider the peculiarities of the United States, especially in the residential sector for the middle class. In the USA, most citizens—especially those of working age—do not own the homes they live in. Simplifying the issue: houses are rented for living, and they are purchased for investment.

Who benefits from this scenario

In this scenario, characterized by significantly expensive mortgages, all real estate investors who do not need financing benefit. Those who have sufficient liquidity for a US real estate investment (between $75,000 and $160,000 approximately) and need to protect it from inflation find three advantages in this particular context:

  • They secure yields between 5% and 10%, capable of outpacing inflation (currently at 3.75% in the USA).
  • They safeguard their capital by investing it in an asset like residential real estate, which tends to appreciate in the medium to long term and in a strong currency like the dollar.
  • They find more favorable selling prices due to a lack of competition from those who need a mortgage for their real estate purchase.

Do you want to enjoy these three advantages?

If you identify with the description in the previous paragraph and want to take advantage of this particular scenario, please write to contact@opisas.com to schedule an appointment with a consultant who can explain how to seize this opportunity.