Real estate prices are through the roof as a result of the near-zero interest rate policy the Federal Reserve followed over the past two years. Median house prices in the U.S. are more than $400,000, but this should not discourage you from investing in real estate, which can yield impressive returns over the long term.
The federal funds rate stands at 2.33% and is expected to rise, as Fed Chairman Jerome Powell reiterated the aggressive rate hike plan at the Jackson Hole economic summit last month. Nonetheless, average 30-year mortgage rates have been slumping lately because of declining demand and widening supply.
According to Bankrate LLC’s national survey of lenders, the average 30-year mortgage rate stood at 5.78% in the last week of August, marking a decline of six basis points from the previous week. Federally backed mortgage company Fannie Mae predicts the average 30-year rate to slump to 4.5% in 2023.
Real estate investments are typically held for decades to ensure a substantial return on investment. So, interest rates are only one of the parameters investors should take into account while considering such investments.
As the economic backdrop remains highly volatile, mortgage rates are expected to fluctuate at least till the end of this year. This comes as the recent slump in consumer spending reduced the demand for residential housing significantly in the U.S.
Keith Gumbinger, vice president of HSH, the largest market news publisher of mortgage information in the U.S., recently said, “If you’re participating in the marketplace, interest rates are important but might not be the most important component.”
It is indisputable that housing affordability in the U.S. is at record lows, making real estate investments extremely expensive. Nonetheless, investors can still diversify their portfolios by investing in real estate investment trusts (REITs), fractional real estate or syndication. These alternative investment options can be a better choice for many people because they reduce the paperwork and burden of managing properties.
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