Increased Demand for Rental Properties Fueled by Fed Interest Rate Hike

Our experts weigh-in on how this interest rate hike will affect the housing market and how you can best prepare your portfolio.

The Federal government just announced a hike in short term lending rates, which marks the first increase since December of 2008. The impact of this rate will be felt across all asset classes and discerning investors are taking action now.

The bull market had been running strong for years, and economic growth has supported an increase in jobs expanding payrolls 12.7 million jobs compared to the 8.7 million jobs that were lost during the previous recession. But the bull market couldn’t go on forever, and the rumors of this rate hike alone have kept the market stagnant for the past year. Now that the rate hike has occurred, combined with other factors like the $473 billion worth of stocks and securities purchased on credit through margin, a bear market is likely to be right around the corner.

What a Rate Hike Means for Real Estate Investors

The reach of the rate hike will affect the real estate market, with an emphasis on first-time homebuyers. Homeownership has been on a steady decline and recently fell to a low of 63.7%; the lowest it has been in 48 years. First-time buyers represented 40% of all homebuyers historically, but that number fell to 30% during the current recovery.

 

homeownership chart[2]

With first-time homebuyers delaying purchases and ownership rates trending downward, rental rates are projected to climb. Today, rental vacancies are at 30-year lows, and financial experts forecast that increasing rents will outpace inflation. For investors looking for diversification, single-family rentals provide a strong alternative choice to the stock market.

The recent Federal Open Market Committee meeting has marked the first rise in interest rates in close to a decade. While this change will be felt through all asset classes, real estate investors are presented with an opportunity for as demand and rents will likely increase on income properties.

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