Boston Real Estate
Boston condo buyers make a commitment (Or it won’t happen)
On April 11, Federal Reserve Chairman Jerome Powell appeared on 60 Minutes, stated that “it’s highly unlikely” that the Federal Reserve (often called the “Fed”) will raise interest rates this year. This is music to the ears of investors of all types, as low-interest rates tend to provide fuel to a growing economy.
But there are more considerations afoot—like rising inflation. How do these concerns affect investors? Should you adjust your strategy?
Here’s what you need to know.
Mortgage rates may stabilize
The Fed’s target interest rate, which is what Powell is referring to here, is an important indicator for mortgage prices—particularly adjustable-rate mortgages (ARMs) and HELOCs (home equity lines of credit), which are often tied to this rate.
Who else likes low-interest rates? Businesses, stock investors… and pretty much everyone else. Who doesn’t like cheap money?
At the same time, yields on 10-year government treasuries (a super-important factor for fixed-rate mortgage prices) have come down from their recent highs at the end of March and flattened.
What’s the benefit of flat bond yields? This tends to indicate stable interest rates for fixed-rate mortgages—which is great because rates have been rising. So, mortgage rates might flatten out, unless of course, some crazy news about inflation drops…
Which is exactly what happened.
The biggest inflation increase since 2012
Recently, the Bureau of Labor Statistics announced that the consumer price index—a common measure of inflation—rose at its fastest rate in nine years. It’s not wild inflation. The 0.6% rise was primarily fueled by gas prices (get it?). However, that’s the most it has risen in a single month since August 2012. Some people will freak out.
Many people consider rising inflation to be the potential downside to the recent government stimulus. This announcement will certainly prove fodder for that debate. Everyone hates inflation (real estate investors hate it a little less) because it means your money is worth less.
Hopefully, no more news drops before I finish writing.
What this means for real estate investors
Overall, the economic outlook looks strong, which is wonderful. In fact, the International Monetary Fund recently projected 6.4% GDP growth for the U.S. in 2021, which hasn’t happened since before I was born—all the way back to the ancient ’80s when the internet didn’t exist and parachute pants were (still are?) cool. So, things are looking good for 2021.
Powell’s appearance on 60 Minutes will only help things. It was basically a signal to all Americans—particularly investors—that the Fed’s Cheap Money Store will be open 24/7 for the foreseeable future. This should keep interest rates on ARMs and HELOCs very low. It also allows businesses to borrow, invest, hire, and do all the great things that fuel long-term economic growth. That’s a good signs for appreciation and rent growth.
The recent inflation news is the only wrench. Rising inflation typically means bond yields also rise, which leads to interest rates on fixed-rate mortgages rising… which can cool off a hot real estate market. (It can also cool off a hot stock market, but that’s a conversation for another day.)
Rising mortgage rates make it more expensive to borrow money. That means buyers can afford less and it’s less likely they’ll pay over asking price. Prices are rapidly increasing in markets all across the U.S.
So, while the first set of news suggests continued strength for the housing market, inflation provides a counter-narrative.
The best investment during inflation
If that all happens, and inflation is indeed here to stay, real estate income is generally considered one of—if not the single best—hedge against inflation. No, real estate investors don’t welcome inflation, but active investors should worry just a little less than everyone else.
Why? Because as prices in general rise, so will rent income—but your mortgage payments stay the same. That makes your mortgage more affordable.
I know it’s not as entertaining as Bridgerton or TikTok or whatever people watch, but keep an eye on bond yields. If they start to rise based on the recent inflation news, mortgage rates on fixed-rate mortgages will also rise, likely cooling the housing and stock markets.
Last thing: If you’re thinking about locking in a rate on a mortgage, now might be a good time to do it. I think fixed-rate mortgages may get more expensive in the coming days.
Take that advice with a grain of salt, though. Remember, I’m no economist, and I can’t predict exactly what will happen. If 2020 taught me anything it’s that I have no idea what the hell is going to happen. With anything.
But, if I were in the market for a property right now, I would lock in a rate ASAP.
Boston condo buyers make a commitment
In the Boston real estate world, dipping your toe into the idea of buying a Boston condo for sale will very rarely yield extraordinary results. You must go in all the way, be 100% committed as if your overall success depends on it…Because in some ways it does. Your success is built on a pattern of results, and quite frankly, you will be successful a higher percentage of the time if you put 100% into your goals Make up your mind, develop a strategy, execute, and reap the rewards.
I’m reminded of this fable:
The Boy and the Nettles
A BOY was stung by a Nettle. He ran home and told his Mother,
saying, “Although it hurts me very much, I only touched it
gently.” “That was just why it stung you,” said his mother. “The
next time you touch a Nettle, grasp it boldly, and it will be
soft as silk to your hand, and not in the least hurt you.”
“Whatever you do, do with all your might.”
