Pending home sales in February increased for the third consecutive month, despite interest rates reaching a 15-year high. This indicates that the housing shortage in the United States is still ongoing, and Americans have to compete for properties even amidst the rising interest rates.
The limited supply of residential properties presents a significant opportunity for investors to develop new properties while the demand for housing is high. However, it also represents a risk for investors targeting single-family residential properties, as competition with consumers for deals remains stiff.
Investors hoping to take advantage of the still-rising real estate market should ensure they are as competitive as possible, including arranging financing early to avoid contingencies in the offer stage.
With interest rates on the rise and an increasing number of loans slipping into default, commercial lenders are bracing for losses. After years of artificially depressed interest rates, many lenders provided loans to borrowers with questionable repayment ability. As a result, some borrowers are now finding it difficult to service their debt, and increased interest rates have made refinancing difficult for some to afford, leading to an increased risk of default.
The coming wave of loan losses has forced lenders to become more cautious when extending loans, with many tightening their lending criteria and stepping up their monitoring of existing loan portfolios. Although it’s expected that the coming wave of foreclosures on investment properties won’t be as severe as in 2008, it will still represent a significant challenge for lenders.
However, for savvy investors, this development will also present a once-in-a-decade opportunity to acquire short sales and distressed properties at attractive prices. While it may be a challenging time for lenders, astute investors will be well-positioned to take advantage of this market downturn.
The recent bank crisis in the wake of rising interest rates has caused the Federal Reserve to slow its pace of rate hikes to curb inflation. Of particular concern are the failures of Silicon Valley Bank (SVB) and First Republic, both of which had heavy exposure to long-term U.S. Treasuries that collapsed in value following aggressive Fed rate hikes.
The implications of these failures have been significant and far-reaching, raising questions about the FDIC’s willingness and ability to guarantee depositor funds and leading many businesses to tighten their purse strings as they wait for a clearer understanding of the security of the funds they use for payroll and future growth.
Given these developments, the Federal Reserve has indicated a willingness to slow the pace of rate hikes to maintain stability and prevent further disruptions in the banking sector. Precisely how this will affect interest rates going forward remains to be seen, but it seems clear that they will be less likely to rise as rapidly as they have been. The Fed will likely be more cautious in its approach to future monetary policy.
The past several years have seen a remarkable increase in property values, which has resulted in a substantial increase in tax receipts for local governments. While some municipalities have moved to restrict increases in property taxes, others have been exploring ways to utilize these receipts to better serve their communities.
An increasing number of governments are considering investing these excess funds in local services or infrastructure. Many of these proposed projects could lead to further appreciation in property values and continue the momentum of new development in some markets.
There are numerous possibilities for channeling these surplus revenues, including renovating schools or constructing new facilities, repairing roads, bridges, and other infrastructure, improving public transportation, or investing in community projects to benefit residents. The impact of these investments could be immense, generating economic growth and increasing the value of properties in these areas. The ramifications of such developments could continue to contribute to the investment prospects in some regions for years to come.