Author: Premela R.

The Federal Reserve’s interest rate decisions play a significant role in the real estate market, impacting investors in different ways. This article explores two perspectives on how Fed interest rate decisions can affect foreign national investors and U.S. expat investors in the real estate market.

Point of View 1: The Fed Will Raise Interest Rates

“The Federal Reserve’s job is to do the right thing, to take the long-run interest of the economy to heart, and that sometimes means being unpopular. But we have to do the right thing.” – Ben Bernanke, Former Chairman of the Federal Reserve.

Impact on the Real Estate Market:

If the Fed raises interest rates, it becomes more expensive to borrow money. This will likely cool the housing market further, discouraging potential owner-occupied buyers with higher mortgage rates and potentially, in some markets, could lead to a decrease in property prices. Comparing interest rates to post-Covid, many view this as a “high-interest rate environment”; however, it’s essential to note that U.S. mortgage rates, even with recent increases, still remain historically low.

Investors who act now may benefit from several advantages:

1. Future Refinancing Potential: What goes up, must come down. If the Fed decides to reduce interest rates in future cycles, property owners can explore refinancing options for lower mortgage rates, reducing monthly payments, and releasing equity for other investments or property improvements.

2. Stable Mortgage Payments with 30-Year Fixed: Opting for a 30 or 40-year fixed-rate mortgage period provides stability and predictability in mortgage payments, even if the Fed raises rates. This not only provides investors with financial security but also grants them peace of mind, as they have a clear, unchanging monthly payment to budget for.

3. Affordability and Negotiation Power: The fear of further rate increases may lead some potential investors and many owner-occupied buyers to remain on the sidelines, assuming it’s a high-interest rate environment. In reality, if the property is purchased as a rental investment, interest rates are still favorable. Investors who act now not only secure fixed rates but maintain their affordability advantage. Moreover, they tend to be in a position of power to negotiate deals that did not exist when rates were low.

4. Everything is Cyclical: Again, what goes up, must come down. If you’re able to take advantage of the current buyer’s market and purchase a property with favourable terms now when interest rates go back down to 4-5%, the FOMO frenzy will happen again, and likely, property prices will appreciate quickly.

Will the Fed’s Interest Rate Hikes Make Rental Yields Unattainable?

As interest rates rise, it becomes tougher for homebuyers to afford their dream properties. This creates an ideal scenario for real estate investors as more individuals opt for renting. As the number of people unable to buy or choosing to wait grows, rental prices go up. This ongoing trend boosts rental yields, even in the face of higher interest rates. This highlights the importance of timing for potential real estate investors, especially foreign nationals and U.S. expats.

In summary, the current market landscape presents an opportune moment for investors to make strategic real estate purchases. By recognizing that interest rates, even if they rise, are still overall historically low, investors can secure stable mortgage payments, preserve negotiation power, and position themselves to capitalize on potential future interest rate reductions through refinancing. Now is the time to act and benefit from the unique advantages offered in today’s real estate market.

Point of View 2: The Fed Will Hold Steady or Start Decreasing Interest Rates

If the Federal Reserve keeps interest rates where they are or even lowers them, it could have some notable effects on the real estate market. Lower rates tend to make homes more affordable, which can attract more buyers and potentially push property prices higher. 

Impact on Housing Prices:

If the Fed maintains or decreases interest rates, it can stimulate housing prices. Lower rates enhance affordability, attracting more buyers and potentially driving property values higher.

Will People Sitting on the Sidelines Jump Back into the Market?

Lower interest rates can serve as a catalyst for individuals who have been patiently waiting on the sidelines. Reduced borrowing costs make homeownership more accessible, motivating potential buyers to enter the market. This surge in demand could create a favorable environment for those who have already invested in real estate.

Potential for Refinancing:

Date the Rate. Marry the Property. One strategic advantage of buying real estate now, especially when interest rates are low, is the possibility of future refinancing. If the Fed does indeed decrease interest rates in the future, investors can explore refinancing options to secure even lower mortgage rates. This not only reduces monthly payments but also allows investors to release equity for other investment opportunities or property improvements.

Impact on Foreign National Investors and U.S. Expat Investors:

Lower interest rates can make U.S. real estate investments more attractive to foreign national investors and U.S. expats. Reduced borrowing costs in U.S. dollars can create financial advantages for entering the American real estate market.

In conclusion, acting now in the real estate market while interest rates remain favorable presents a dual opportunity: the potential for immediate returns through rental yields and the prospect of future refinancing benefits should the Fed decide to reduce interest rates further.

At America Mortgages, we know the Fed’s interest rate decisions can be uncertain for foreign national and U.S. expat investors. We’re here to help. Our experienced loan officers can clarify how these decisions impact your investments. Don’t wait – secure the ideal mortgage for your needs and unleash your real estate investment potential.

Contact us today to get started on achieving your investment goals. [email protected]

www.americamortgages.com

The U.S. real estate market has been thriving over the past several years. Even with increased borrowing rates, the lack of U.S. property inventory has kept property prices stable and, in many markets, expected to appreciate beyond market expectations. 

Now, picture this: What if you purchased today at higher interest rates where owner-occupied buyers are sitting on the sidelines? Sure, your cost of borrowing would be higher; however, the likelihood of buying a property for more favorable terms and price is certainly higher. Now imagine what will happen to that property if interest rates were to drop to 4% next year. 

Let the frenzy begin (again)! 

Sophisticated real estate investors and funds jump at the opportunity to buy when others are not. This is when great deals are available, and competition for these properties is low. Sophisticated investors avoid getting caught in the FOMO frenzy when rates are low, and everyone is buying. They buy now and then simply wait to refinance to a lower rate when it makes sense. Marry the property. Date the rate.

Here’s the thrilling part for foreign national and U.S. expat investors who are contemplating a purchase in 2023. America Mortgages has loan programs such as 40-year fixed terms or 10-year fixed interest-only programs, which offset the current higher rates, making payments more affordable. 

Shifts in Property Prices

If interest rates were to fall to 4%, one immediate consequence would likely be an upswing in property prices. Lower interest rates make borrowing more affordable, creating a larger pool of potential homebuyers including those looking to buy a home to live in (owner-occupied) and real estate investors. This heightened demand typically drives home prices up. However, the extent of this price increase would still depend on factors like the overall health of the economy and the housing supply.

Homeownership Trends and Refinancing

Indeed, things are changing in how people see owning a home. James Healy, a real estate expert, says Millennials are playing a big role in this shift. He explains, “The American dream of owning a home is still there, but now millennials are the ones taking the lead. They see real estate as an investment, even if they live there, and they might not feel as emotionally attached as in the past.”

Furthermore, homeowners are now embracing the concept of shorter-term investments, with an increasing number contemplating stays of just 2 to 3 years in their properties. This shift in mindset opens opportunities for refinancing. In situations like this, refinancing within a year to get interest rates under 4% starts to look really appealing, making it easier to achieve the dream of owning a home.   

2024 Mortgage Rate Forecast

As per MBA’s projections, the average interest rate for a 30-year fixed mortgage is estimated to drop significantly by late 2024. If you are looking to buy a home now, it’s just a matter of waiting for interest rates to become more favorable. If rates go in the opposite direction, you have the comfort of knowing you’re in a long-term fixed-term loan regardless of the age of the borrower, Something very unique to global real estate investors. 

Why Act Now?

• Long-Term Appreciation: Property values are projected to continue appreciating over time. Although they might not grow in price as quickly, a recovering economy, low unemployment rates, and limited housing supply collectively support the enduring appreciation of property values.
  
• Resourceful Lenders: At America Mortgages, we specialize in helping foreign national and U.S. expat investors navigate the U.S. property market. We offer a range of customized programs designed to simplify the loan qualification process.

In conclusion, while lower interest rates might seem important for the U.S. real estate market, there’s more to think about. Investors should consider how sophisticated real estate investors and funds look at property investing in a “down” market. They look at how property values could grow over time and creative financing options that can maximize yield. They also focus on the “now” while strategically planning for “tomorrow.” 

Whether you’re a foreign national, a U.S. expat, or a seasoned investor, America Mortgages’ specialized lending programs are designed to make your homeownership dreams a reality. With our expertise and dedication to your success, we ensure that you not only secure favorable terms but also embark on a journey of financial growth and prosperity. Trust America Mortgages to be your partner in achieving your real estate goals. Your future in U.S. real estate begins with us. [email protected]

www.americamortgages.com

Everyone is aware mortgage interest rates have been rising since early last year. The average interest rate on a 30-year mortgage is now almost 7%.

Those rates have undoubtedly made buying a home more expensive. In fact, according to the Mortgage Bankers Association, the median mortgage payment is now $2,162 — up 14% from a year ago, making it difficult for many homebuyers to afford; hence, they are forced to rent, creating a perfect storm for rental property owners. 

Sophisticated investors rejoice as it is now a BUYER’S MARKET. If you take the popular “marry the property, date the rate” approach, experts say those higher rates might not seem all that bad.

What exactly does this approach entail, though? Here’s what you need to know.

What does “marry the property, date the rate” mean?

“Marry the property, date the rate” is a popular saying these days, thanks to higher interest rates. Essentially, the idea is that when you buy a house in today’s market, you focus on finding the perfect investment property or second home — a home you love and want to tie yourself to for the long term (like a marriage). 

But your rate? That’s something you approach as only temporary — someone you’d date but never really commit to. 

“This strategy suggests that you should prioritise finding the right property that checks all the boxes for your long-term needs and preferences rather than getting overly fixated on the current interest rates,” says Nick Worthing, America Mortgages’ Vice President of U.S. Lending. “In other words, focus on the specifics of the property itself, as it’s a long-term investment, while considering interest rates as a variable that can change over time.” He further states, “Sophisticated investors jump into the market when they are in the driver’s seat and can negotiate great deals. The novice investor jumps into the market when everyone else does. It doesn’t mean one investment strategy is right and the other is wrong; it simply means an – opportunity.”

The key component of the “marry the property, date the rate” approach is refinancing and potentially taking advantage of increasing property values once rates decrease again (and if history repeats itself, they will). If you choose this strategy, you’d take today’s interest rates as a necessary evil and then plan a refinance down the road — once rates fall and you’re done “dating” that initial rate. 

When is it smart to “marry the property, date the rate”?

Taking the “marry the property, date the rate” approach can be a smart strategy as long as you follow two simple rules: First, make sure your mortgage payment is one you can comfortably afford for the foreseeable future and the rental amount is sufficient to cover all or most of that amount. There’s always the chance that rates won’t drop soon, so make sure you aren’t overextending yourself. “If you find the right property at a good price, then it is always the right time to buy with a long-term hold philosophy. In a Buyer’s Market, when the owner-occupied buyer is sitting on the side-lines, the investor has the upper hand to get into a property deal at terms that haven’t been seen for the past few years. 

Second, the seller will be willing to “make a deal,” and you need to get the property at a good price. This will not only help offset the cost of those higher rates, but it’s also the one variable you can’t go back on. The strategy here; you have the option to renegotiate your mortgage rate if rates fall, but you can’t renegotiate the purchase price.

When shouldn’t you “marry the house, date the rate”?

Dating the rate isn’t a good idea if you’re in a particularly hot housing market. This likely means you’ll pay an inflated price for your home and compete against people buying their “dream home” to live in. This is not an investors’ market unless you’re looking for a quick flip. If you don’t plan to hold the property for a while, this strategy may not work for you. While refinancing can help you take advantage of lower rates later on, it does come with costs. When interest rates decrease, America Mortgages can easily give you a breakdown to see if/when refinancing makes sense.

Other ways to deal with higher mortgage rates

Rolling over for today’s high mortgage rates isn’t your only option if you want to buy a home in today’s market. For one, you can explore alternative mortgage products that America Mortgages offers. While rates on 30-year loans might be near 7%, there are numerous ways to offset the rate with creative loan programs. 

• Interest Only – service the interest at a fixed rate for 10 years. You will not be paying down the principal, but for savvy investors, this is an excellent way to maintain a positive yield.

• 40-year mortgage loans – yes, you read that correctly. America Mortgages now has fixed rate 40-year tenure. This is an excellent way to fix your rate over the long haul. You know exactly what that payment will be for the next 40 years; as rental prices increase, your payment will stay the same. Even if you don’t refinance, this is a fantastic way to see passive income with a long-term hold strategy. 

The monthly payment for a amortization 30-year fixed mortgage (P/I) with a loan amount of $250,000 at an interest rate of 5.00% is $1,380. The monthly payment for a 40-year fixed, 10 year interest-only mortgage with the same loan amount of $250,000 at an interest rate of 7.5% is only $1,526. This is an increase of $146, a 10.5% increase.

When compared to the rising cost of rent, the increase in monthly mortgage payments is relatively minimal. The average rent for a two-bedroom apartment in a major U.S. city has increased by more than 40% in the past two years. This means creative financing even in a higher interest rate environment can actual improve rental yield overall.

Will mortgage rates go down soon?

There’s no way to tell for sure if mortgage rates will drop, but if history repeats itself, expect rates to be lower within the next 12 to 24 months. Fannie Mae, the National Association of Realtors, and the Mortgage Bankers Association (MBA) agree, too. MBA predicts the average rate on 30-year mortgages will fall below 5% (owner occupied) by the end of 2024, while Fannie Mae’s projection is a 5.9% average. NAR predicts a slightly higher 6% rate.

It all will depend on inflation and the Fed’s actions in response to it. If inflation stays high and the Fed continues to increase its benchmark rate, mortgage rates could increase even further. If inflation cools and the Fed stops its rate hikes or reduces its rate altogether, mortgage rates could fall. We expect the latter, especially going into the next Presidential election. 

The bottom line

For now, mortgage rates are still higher than they were, but still historically low over a 20-year period.

While the “marry the property, date the rate” approach will work for some investors, it’s not the right move for everyone. Always talk to your America Mortgages professional or financial advisor if you’re unsure what is best for your finances. If you do opt for the “date the rate” strategy, make sure you view it with a long-term hold (5 years+). Though refinancing may be an option later on, there’s no guarantee rates will drop while you own the property. 

Trust the experts

Unlike most banks and brokers that see one International Investor looking to obtain a mortgage a year, 100% of our clients are International Investors. Trust the experts in this industry to understand the complexities of Foreign National or U.S. Expat clients. For some, this is a rarity. For us, this is all we do! If you’d like information on loan programs or to schedule a call with one of our mortgage professionals, please use this convenient 24/7 calendar link.

www.americamortgages.com

1. Wish I Could Time the U.S. Real Estate Market

“The market can stay irrational longer than you can stay solvent. That’s why it’s important to have a long-term investment horizon when you’re investing in real estate. Don’t try to time the market. Just focus on finding good deals and investing in properties that you believe in.” – John Maynard Keynes, Economist

The U.S. real estate market is an ever-changing landscape, but there has been far more success stories than not. However, understanding the factors that affect the market, such as interest rates, can increase your chances of making a wise investment in a timely manner.

For example, when interest rates are high, it’s an excellent time to buy since the marginal buyer can not afford the mortgage at current levels. This creates less demand and gives you pricing power over sellers to negotiate a better purchase price.

Conversely, when interest rates are low, it’s a great time to sell, as financing becomes more affordable and potential buyers emerge, creating more demand and giving more pricing power to sellers to negotiate higher selling prices.

Most sophisticated investors jump into this type of market immediately as property values will remain stable, and the opportunity to get not just a good deal but a great deal is much more possible. Remember, “Date the rate. Marry the property.” Interest rates will go up, and interest rates will go down. The unique aspect of U.S. real estate investing is that the U.S. allows you to fix an interest rate for 30 years regardless of the borrower’s age. If rates go down, refinance to a lower rate. If rates keep increasing, then you have the confidence of knowing that your mortgage payment is fixed. However, the likelihood of rental rates increasing is almost certain.

If you think interest rates are high, here’s a look at historical interest rates in the U.S.:

As you can see, interest rates have been trending downward for many years. This is good news for potential buyers because it means that monthly mortgage payments will be lower.

Bottom Line: The time you spend in the market is more important than timing the market.

2. I Wish Interest Rates Were Lower

Even though interest rates are higher now than they were a few years ago, they are still historically low. In fact, the average interest rate on a 30-year fixed-rate mortgage is currently around 7.50%. This is still much lower than the average interest rate of 14.6% in 1980.  

So, why do investors still invest in U.S. real estate when interest rates are high? There are a few reasons:  

Real estate is a tangible asset – Unlike stocks or bonds, real estate is a physical asset that you can touch and see. This makes it a more attractive investment for some people.

Real estate is a long-term investment – If you buy and hold onto a property long-term, you’ll likely see your investment appreciate in value.

Real estate can generate income – If you rent out your property, you can generate income to help offset your mortgage payments. With 30-year fixed rates (regardless of age), investors have the confidence of knowing their expenses are fixed, while rental rates increase over time.

3. I Wish Property Values Doubled Every Year

It would be great if property values doubled yearly, but unfortunately, that’s unrealistic. However, in some areas, property values appreciate more quickly than in others. For example, in hot real estate markets like San Francisco and New York City, property values can double in as little as 10 years.

In stable, consistent real estate markets such as the U.S., property values generally appreciate at an average rate of 3%-5% per year. However, several factors can affect the rate of property appreciation, such as the overall health of the economy, the supply and demand for housing in a particular area, and interest rates.

We at America Mortgages are here to help foreign nationals and U.S. expat investors navigate the intricacies of U.S. real estate investing. Our expertise and tailored mortgage options can help you achieve your investment goals and make the most of the opportunities in the market.

Our team of experienced loan officers is well-versed in working with foreign national and expat clients. We can help you navigate the complexities of U.S. mortgage options, ensuring that you have access to the most suitable financing solutions for your specific circumstances. Whether you’re looking to diversify your investment portfolio, purchase a home, or establish a foothold in the U.S. real estate market, America Mortgages is your trusted partner.

Contact us today at [email protected] to explore how we can assist you in achieving your U.S. real estate investment dreams. With our expertise and personalised approach, we are here to help you seize the opportunities and build a successful real estate portfolio in the U.S.

www.americamortgages.com