Dec 20, 2023
On December 13, the Federal Reserve concluded its final meeting of 2023 to outline its strategy for the upcoming year, 2024. Following their discussions, the Fed issued an official statement signaling a planned reduction of 0.75 percentage points in 2024, translating to three cuts of 0.25 percentage points each. What implications does this hold for real estate investors and prospective first-time home buyers?
For those acquainted with the ongoing dialogue, the challenge of purchasing a first home has been a prominent issue for Gen Z and Millennials. Soaring interest rates have often resulted in monthly payments of $5,000 for a modest 1,000 sqft house, courtesy of a 7.5% interest rate. The persistent rise in mortgage interest rates has made home ownership appear elusive, leaving many to wonder if the only path to homeownership lies in being born a Boomer or inheriting property.
This housing market dilemma stems from the Federal Reserve's efforts to curb escalating inflation. In response to the COVID-19 pandemic in 2020, the Fed executed substantial overnight rate cuts to alleviate economic distress, inadvertently sparking a bidding war for houses in several major states. Subsequent to these rapid rate cuts, inflation spiraled out of control.
To counteract this inflationary surge, the Fed implemented significant rate hikes totaling 425 basis points in 2022 and an additional 100 basis points in 2023. Consequently, we find ourselves in a predicament where acquiring a home seems nearly insurmountable unless the property is situated in a remote location or if you were fortunate enough to be born as a Boomer.
What does a rate cut mean for real estate investors?
Alleviate the Financial Strain on Borrowers
Real estate investors can benefit from more affordable loans or the opportunity to refinance existing ones. For those with a fixed-rate mortgage, a rate reduction won't impact their current monthly payment. However, individuals with an adjustable-rate mortgage will experience a decrease in their monthly payments. If obtaining a mortgage was previously challenging or if financial struggles were a concern, now is an opportune time to explore viable options.
Stimulate the Housing Market
With the decreasing cost of home purchases, the demand for housing is poised to rise. Position yourself as a prepared buyer ready to make sound investments in a market that's becoming increasingly favorable.
How to Prepare for 2024?
Organize Your Finances and Establish a Budget
As the master of your financial domain, whether you're venturing into real estate investment or considering house flipping, a solid understanding of your finances is paramount.
Prequalify
Ensure you don't miss out on your dream home due to the search for the right loan service. Take the proactive step of getting prequalified, and remember, there are multiple avenues for securing a loan.
Property Search
Armed with your prequalification letter, initiate your property search. When you find the ideal property, submit your offer promptly. Stay open-minded; in a market where buying is more accessible, competition tends to be fierce.
Consult with Experts
Whether you're flipping your first home or delving into rental property acquisition, having a team of experts by your side is invaluable. Reach out to the knowledgeable professionals at Apex Financing Solutions for guidance and support.