The latest topic of conversation coming out of the talking heads on TV revolves around inflation and possible rising interest rates from the Fed. Should those of us involved in hard money lending be concerned? We argue no, as the supply of homes available remains low and demand to buy high.
Normally, with rates rising, people grow concerned about inflation and its effects on the economy. With increasing interest rates, folks pay more for mortgages, which impacts their discretionary spending, damping the economy as a whole. We argue that the demand for new housing remains high enough to offset any negative effects associated with rising rates. Homes considered within the “middle class” range continue to be snapped up at a rapid pace. This points to the need for builders to continue servicing this area, as profits remain on the table.
Once the market for affordable housing starts to taper out and enter a more normal supply and demand cycle, we may begin to see rates affect a person’s decision to buy a home. Until that time, we at Loan Ranger Capital expect to see healthy demand for hard money services. The opportunity for builders especially seems to be growing, as more folks decide to call Texas home. Recent topics under consideration in a number of metros include transportation packages, further incentivizing growth and community development.
One factor we will be watching is the impact of Jerome Powell as Fed Chair. With a background in finance and law, he may be an advocate for small business growth and support favorable policies. This support would be beneficial for our borrowers, as many of them are hardworking business owners themselves. Traditionally, most Fed Chairs come from economic backgrounds, which does not necessarily translate to business savvy.
In conclusion, rising interest rates should have a muted effect on a person’s decision to buy a home at this point in the economic cycle. A strong economy and healthy job market are larger factors in a person’s decision to purchase a home than increasing mortgage rates.