Does The Fed Interest Rate Hike Diminish The Demand For Homes?
The Fed approved a 0.25 percentage point rate hike on March 16th. During the meeting, FOMC raised the benchmark rate by a half-percentage point. This was followed by a quarter point in the march. Several more hikes can be expected this year. All these increased interest rate hikes have affected the rental market for single-family homes negatively.
How the interest rate is affecting the housing market
The Federal Open Market Committee (FOMC), often referred to as the Fed, has a lot to do with it. They target specific interest rates. This body of the Fed is composed of seven governors and five reserve banks. After holding a meeting, they make a plan regarding the issues they are facing. Each year they compare their funds and reserve system. So, if the authority comes up with a decision that a specific interest rate needs to be higher to maintain the flow of the economy, they do that.
Single-family homes or other rented real estates like this have been getting so much attention, as they are interest-generating. So, the Fed has decided to increase the interest rate. But this comes with a few problems. Buyers of rented homes are facing many issues. Investors who are interested in this sort of real estate are having issues.
An overall increase in interest rate will affect the whole market. So, Single-family homes would also have to face the issues. Mostly the owners are the ones who have to deal with the problems.
Rental property values- Being consistent with other investment vehicles, the rate in rental property affects the people who live in rented houses. House owners cannot increase the rent amount as they want. Often the landlord has to face loss by renting the place.
Purchasing power decreases- If rental homes get overpriced, the people who are interested in buying houses cannot afford them. Investors mainly look for properties to invest in to generate interest. If the rented houses get expensive, it’s hard for them to invest and generate profit.