2022 has seen an abrupt end to the era of historically low interest rates, which began in earnest in 2009. The increasing cost of capital has had significant impacts throughout the economy and certainly will continue to do so into the future. One area directly affected is the cost of housing, where interest rates on a 30-year mortgage have increased from under 3% to over 6% in less than a year.1
The increase in interest rates along with the continued supply shortage in the housing market has made the prospect of home ownership even less attainable. This along with continued demographic trends is likely to lead to years of strong rent growth. Griffin Capital has an insightful piece (linked below) that dives into the trends that lead us here and provides great insight into the current housing and rental market.
As we continue to evaluate investments for our clients, we think that both micro and macroeconomic forces should persist in providing tailwinds for multi-family real estate investment. While cap rates continue to remain stubbornly low, it is worth considering that there is a good possibility that rental growth could remain strong. If that happens, cash flow generated from these investments could potentially increase as could the value of these properties.
Without a doubt, these are unsettling and quickly changing economic times. As always, each investor's time horizon, goals, and risk tolerance must be taken into consideration. While we continue to see opportunity, that opportunity does not come without risk, and no one asset class or investment is the perfect solution. We continue to stress diversification to our clients investing in real estate with cash or through a 1031 exchange. If you have questions regarding a 1031 exchange, alternative investments, or your overall financial portfolio please do not hesitate to reach out or schedule a meeting.
For more reading on this topic, we recommend:
- Understanding the Significant Decline in Housing Affordability and What it Means for Rental Demand - Griffin Capital
- Rising Mortgage Rates Complicate Decision on Buying Versus Renting - The Wall Street Journal
For more information or to discuss your unique situation, please feel free to contact our team.
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1. bankrate.com
