Making the move before the market does is the ultimate sign of an investor plugged into their environment. Being able to go against the consensus of “logical” thinking is a difficult task, but soon after, when the market follows, you’ll look like a genius.
So right now, while real estate supply is still historically short, people aren’t buying (because they can’t afford it), and investors don’t want to borrow because they are waiting for rates to drop (and they will very soon), you need to buy. Here’s why.
Interest Rates: The Poster Child of the Soft Landing
Interest rates have played the biggest role in the market for over a year now. The Federal Reserve’s attempt at slowing down inflation and the economy and stuffing the record-breaking housing market in 2022 has, for the most part, been a success in their book.
Even though interest rates may have absolutely sideswiped the market, the decently high rates are shaping a new market that can help investors make huge gains down the road.
First, we must look at the sole purpose of raising interest rates in the first place: to slow down the rapid inflation the economy was facing in the first half of 2022. Coming off the hottest real estate market in recent history, where prices were skyrocketing, and buyers could not bid high enough to buy any property that was on the market for more than three days, the Fed needed to get it under control.
Once interest rate spikes started, they continued to rise for over 15 months. The hike has been effective. The rapidly rising home prices of 2022 have slowed down significantly, and homes are not flying off the market like they were a year ago. In fact, according to data from the National Association of Realtors, existing home sales were down 16.6% from last year in July—in other words, the market has sufficiently slowed down.
The Fed is satisfied with its job, so we should expect interest rates to be cut soon. In fact, it’s widely expected the Fed will cut interest rates in 2024.
Cutting interest rates will free up the market, boost the economy, and allow many people to sell and buy their homes more easily. But you should buy before this happens.
It may seem contradictory to accept the current higher rates and buy, only to sit and watch the rates fall for everyone else as they jump into the market all at once. But that’s exactly what you must do to win big right now.
We are on the back end of the interest rate trend, which is now on the clock. That means that interest rates probably won’t go up anymore, meaning prices will drop only slightly more between now and the end of the year. Once rates begin to be cut, demand will increase, and prices will immediately start to skyrocket again. By this time, it will be too late.
Buy now while prices are low. You will be able to refinance as soon as the rates drop, and you will have locked up your assets for a lower price. After refinancing, watch as the market skyrockets again (more modestly this time) and sell when the time is right—instant profit.
But how can we be so sure? First, you must look at the umbrella trends that will have a significant impact on the market behavior over the next 12 months. Understanding where we stand in the market today will help you maximize your success right now and position yourself for more success in the future.
The Historic Effect of Election Years
As we approach a presidential election year, history dictates we could see a bolstered economy that would favor the incumbent. It’s happened before in 1984 (Reagan), 1996 (Clinton), and 2012 (Obama). The Biden administration will want the economy to be in a good state as we approach November, and the housing market should be a big factor in this.
Therefore, as we head into the election year of 2024, based on this historical evidence, anticipate the positive outcomes of lower interest rates, decreased construction expenses, and additional advantages.
Keep an Eye on Seasonal Trends
Macro trends like election years, the economic outlook from the media, and the Fed’s decisions sometimes overshadow the local trends that can help you get more out of your assets as we approach 2024.
The slow season is something to take note of in any market you look to invest in. For many markets, the slow season comes during the winter months. As summer ends, people nationwide begin to settle in for the new school year and the holidays, especially those living in states that experience harsh winters. The heavy snow and freezing temperatures are less enticing for people to move into a new home.
Take advantage of this upcoming slow season by becoming more active as a buyer. Chances are you will get more attention from real estate agents because interest is low. Due to a lack of offers, you may even be able to get a better deal for the sake of the seller wanting to get the burden off of their hands.
The Real Estate Cycle
Once you dominate the offseason, it’s important to note where you stand in the broader sense of things to position yourself for maximum success in the future.
The real estate market is cyclical, and understanding the four major phases of the cycle is essential for recognizing the current state of the market. The four phases are:
We currently sit in an expansion phase. Despite what it may feel like right now, if you look at the symptoms of an expansion market, you can see why:
- Active new construction: Check
- Low vacancy rates: Check
- Increased rents: Check
- General optimism for the future: Eh
- Rising prices: Check
- Readily available financing: Check (if you’re willing to accept the rates)
We’re at the end of the expansion phase now. Although you can still navigate the market with an expansive mindset, it would be better to begin positioning yourself for the next phase: hyper-supply.
You can expect a foreclosure wave as properties begin to make their way through the system after being backed up for two years because of pandemic-era protections expiring. Maximize cash on hand to utilize and dominate short sale opportunities before they go up for auction. This is where you can grab huge market share, which may be the start of your fortune as a real estate investor.
The Bottom Line
The upcoming election, a bolstered economy boosted by interest rates dropping, and the end of a substantial expansion phase in real estate are setting us up for one of the biggest market share grabs in our lifetime.
You have about four months to set up and acquire huge profit margins and get in on the market share in 2024. A seismic shift in the market is on the horizon. Getting ahead of the curve paves the way for success in the years to come.
This fall and winter, act quickly. Anticipate lower interest rates post-calendar flip to 2024 and secure assets at reduced prices that will soar when the Fed makes its move.
Don’t delay. Seize this opportunity before it moves again. Do you want to look back and wish you did, or be glad you took action?
This article is presented by Inner Circle
An exclusive platform providing valuable insights, resources, and deals for investors looking to enhance their understanding. Done-For-You real estate partnerships and joint venture opportunities in the hottest real estate markets in the country.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.