Has the Fed’s recent interest rate hike put you into a tailspin, like so many other people? If so, you’re not alone.
Take this headline from BankRate, June 15, 2022
Fed hikes interest rates by three-quarters of a point to combat decades-high inflation.
The article goes on to say, “For the first time in almost 28 years, the Federal Reserve on Wednesday lifted interest rates by three-quarters of a percentage point, a historic move that kicks policymakers’ fight against stubbornly and painfully elevated inflation into high gear — and also raises the risk of kickstarting a recession.”
For obvious reasons, inflation and the risk of a recession are legitimate concerns for everyone as gas and food prices are through the roof. Consumers will also feel a financial pinch, due to the 30-year mortgage rate’s swift rise to more than 6 percent, pushing it up about 3 percentage points just since December.
Mortgage applications are down 76 percent from a year ago, as fewer ‘would-be’ homebuyers can afford a mortgage, according to weekly data from the Mortgage Bankers Association.
Yet, with all this pessimism, home prices have shown no sign of slowing from the record highs in the first quarter of 2022.
And there are affordability challenges, with this interest rate spike. A $316,000 house at 6 percent is the equivalent of a $450,000 house at 3 percent. We’re likely to see some lenders offering lower rates, as time goes on, in order to compete.
Another good article from Investopedia, talks about how the Federal Reserve’s interest rate hike impacts every aspect of our lives, including mortgage rates.
All of this sounds a bit grim, doesn’t it?
But there is a brighter side of real estate investing… wholesaling.
Let’s take a look at how this interest rate hike affects wholesale real estate investing, if at all.
First… take a deep breath, and let’s see what we can learn from a very successful real estate investor, who isn’t worried about how higher interest rates will affect his business.
We recently had a sit-down with Josiah Grimes, KeyGlee’s CEO/co-founder and asked for his views on the current market conditions and how they may impact the wholesale real estate investing industry.
In a word… wholesale real estate investing is in a cocoon, protected against the ups & downs in the overall, larger real estate market. Wholesaling operates in the sweet spot of real estate investing!
How is wholesale real estate investing THE sweet spot in spite of a 28-year high Fed rate hike, causing mortgage rates to more than double?
Just as the stock market is largely affected by investor sentiment, so the real estate market is equally affected by seller sentiment. And even though home values continue to rise, seller sentiment is on the decline.
Because of seller pessimism, wholesalers can buy ‘instant equity’ in this squeamish seller market that thinks the market’s going down – even though values are still high right now.
This is a great time for FixNFlippers and real estate agents to couple their business, with wholesaling, in order to take advantage of a market condition that looks like it’ll be around for a while.
There’s still growth, but sellers are speculating that values will go negative. And Josiah thinks they’ll only go a little lower, with the Fed rate hike. For example, he thinks that even if our Phoenix market drops from 24% growth rate to 14%... it still won’t fall to zero.
What this means is that seller sentiment still allows wholesalers to get a little equity, while also getting lifts on properties, due to strong demand for a desirable area like Phoenix.
But what about a real estate crash, like in 2008?
We tend to think the last crash will be the next crash. So, since the last real estate crash in 2008, many people expect the next crash to also be in real estate – but that’s not likely to happen.
No crash has originated in the same, main niche as the one prior. It was actually mortgage-backed securities that failed in ‘08. And Dodd Frank was created to ensure that will never happen again.
Market sentiment usually aligns with the market trajectory, but it doesn’t right now. So this situation means that we can buy, with instant equity, and still benefit from speculation, as wholesale investors.
Other factors contributing to this strange set of wonderful circumstances for the wholesale investor include supply chain issues and the fact that a lot of builders did not come back after the ‘08 debacle.
Of those builders that did come back, they were more conservative because a lot of banks would not lend to them as they had previously.
Consequently, not nearly enough houses were built between 2010-2014. And those that were built simply did not satisfy the demand for housing.
The increased population and housing demand created a huge supply gap that was drastically less than the increased demand for housing.
And, as long as supply chain issues continue, new home building will continue to be severely impacted. Add the burden of increased borrowing costs for builders, and it’s easy to see how they’ll have an even harder time building enough houses.
All of these disparate factors present a very unique combination, making it the perfect time for wholesale real estate investors at KeyGlee. And the likelihood of this situation to turn around and go negative for wholesaling is pretty slim.
If you’re already wholesaling, a FixNFlipper, a realtor or anyone else looking for the ‘sweet spot’ of real estate investing…
Check out what we’re doing at KeyGlee, by attending a virtual Discovery Day, where you can learn about our franchise opportunity that includes all the systems, processes, and training that we used to go from 5 friends in a living room to over 100 franchises– in only 5 years.
Or just schedule a quick, no-obligation call, with one of our franchise experts. They’ll discuss the franchise fees, launch day, on-going training, free marketing leads – and any other questions you have.
If you live in the Phoenix area (or want to travel here), we’re in Tempe at our brand new offices and would love to show you around… just make an appointment with the team member you speak with when you call.
To your investing success,
Team KeyGlee
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It's pretty interesting how you can make money in any market condition. I'm thinking about getting into it myself. By the way, uwharrie bank customer service is known for their personalized approach. They might be able to help with saving strategies for real estate ventures.