The time of cheap money is passing, inflation has skyrocketed, and interest rates are climbing. There's no doubt the market is changing, but opportunity remains. Currently, there is a housing shortage that continues to fuel home prices and rental rates—things to consider before investing in today's market.

Climbing Interest Rates

Inflation has jumped to the highest we have seen in the past four decades. In response, the Fed announced rising interest rates. 

Historically, interest rates during Y2K were just above 8%. Over the past two decades, rates have continued to fall until bottoming out in 2020 at 2.7%. Now rates are rising again, inching past 5% for a 30-year loan. 

So while the extraordinary 2.7% interest is a thing of the past, there's still time to lock in lower rates before they climb higher. 

Second Home Rates Increasing

Second-home mortgages will see an impact starting this month in financing rates. Effective April 1, 2022, the government announced that interest rates for second homes would increase between 1.125 percent and 3.875 percent tiered by the loan-to-value ratio, and upfront fee increases.

Housing Market

Many who purchased a home or refinanced during low-interest rates will likely hold on to their homes because their money won't go as far, contributing to fewer available homes.

While interest rates are rising, many investors predict home values will continue to increase at a much slower, more sustainable speed than we experienced during the pandemic.

Low interest and limited supply created a hot market with soaring home prices during the pandemic. But now that interest rates are climbing, buying will slow. Fortunately, a crash isn't predicted because supply is low, making real estate investing still a worthwhile gain.

Bubble Burst 

In 2007 we experienced a massive housing crash from irresponsible lending, adjustable-rate mortgages to unqualified buyers, and an over-saturated housing market. BUT fortunately, today's climate is much different. 

Lending laws were put in place to cut back on irresponsible lending, and there is a housing shortage fueling higher prices. Builders have not been able to keep up with demand.

Rental Market

Flipping may not be as hot as it has been due to higher prices, but the rental market is strong. Supply is not meeting demand. Because of this, rental rates saw an unprecedented rise of 12%, whereas rent the year prior only increased by .6%. 

Conclusion

If you are interested in investing in more real estate, you may want to consider acting now while demand is strong and before rates continue to climb higher.