
Freddie Mac’s recent numbers reveal that the average 30-year fixed-rate mortgage had climbed to 6.93%, an increase from the previous week and higher than this same time last year. Additionally, mortgage rates have remained above 6% since late 2022, which is a sharp contrast when looking at rates from a decade ago, which typically hovered between 3% and 4%.
The increase comes after what was viewed as a positive jobs report where unemployment, which was due to stay around 4.2%, dropped to 4.1% last month. However, sticky inflation also plays a big part in the rate increase as well. Regardless of the reason, the rise obviously poses difficulties for those who have been holding out for lower rates to buy a home.
Related Article: Media Reported “Blockbuster” Jobs Report While Americans Struggled to Find Work
The bottom line is that with property prices as high as they are, especially during a housing crisis, climbing rates are making it nearly impossible to move forward with a personal home purchase. However, at the same time, real estate investors are set up to benefit from these mortgage rate increases, as well as from the lingering inflation.
30-Year Fixed-Rate Mortgage as of 01/09/2025
Homebuyers Wait for Mortgage Rates to Drop to Make Their Move
When mortgage rates are on an upward trend, monthly payments rise along with them, which means buying a home is less affordable, and with home prices remaining high, the dream of homeownership becomes increasingly hopeless.
Even for those who qualify for a mortgage, the higher monthly payments can strain household budgets, leaving less room for other expenses. For instance, a $300,000 loan at the new 6.93% rate would cost about $2,013 per month, up from $1,925 at a previous week’s rate of 6.85%. This comes to $88 extra per month; it doesn’t seem like too much, right? Well, in reality, it adds up to $31,680 by the end of a 30-year loan.
As you can imagine, this can cause a prospective home buyer to delay a purchase or search for a home in an undesirable, lower-priced housing market – it’s not a good situation and hasn’t been for some time now. But this isn’t the case for everyone; as mentioned, real estate investors are actually benefiting from the current economic and housing conditions, which we’ll detail next.
Rising Rates Cause Rental Property Owners’ Net Worth and Cash Flow to Increase
While rising mortgage rates create challenges for prospective homebuyers, they can present opportunities for residential real estate investors. Why is this the case? Because as homeownership becomes more expensive and out of reach, a growing number of individuals and families are turning to the rental market for a place to live. This higher demand for rentals leads to higher rental rates and stronger cash flow for real estate investment owners, and, of course, a high demand keeps vacancy rates low.
Related Article: Do Vacancy Rates Matter in Real Estate Investing?
In addition to this, high inflation secures higher rental rates as well. Also, those following the market know that home values and prices have drastically risen over the past few years due to continuous high inflation, which has allowed investors to rapidly build equity.
Related Article: Harnessing the Power of Home Equity to Buy a Rental Property
Rising home prices create another scenario where personal homebuyers are inclined to take a step back from the market, and set their dream of buying a home on the back burner. This scenario drives down competition and bidding wars for investors when looking for their next property.
So, although the housing crisis and climbing mortgage rates have a negative impact on most individuals, as you can see, investors come out on top.
Power Resources for Investors
Those looking to increase their financial and investment IQ are encouraged to bookmark the following resources for future reading:
- The Financial Freedom Academy
- Freedom Number Cheat Sheet
- 90-Day Financial Empowerment Bootcamp
- Morris Invest & SDIRA Program Overview
Don’t Wait for a Drop in Mortgage Rates to Start Investing in Real Estate
Although it may seem logical to wait for mortgage rates to drop to invest in a rental property, it’s not always the best financial move. Holding off until rates decline means an investor will become part of a massive group of people, and this group includes all those who’ve been waiting anxiously for years to jump back into the market.
Once rates do drop, the floodgates will open. This means that the housing market will flood with buyers and the high demand will cause home prices to rise even more. Even before this happens, home prices will have most likely risen due to inflation. That said, the answer to all this is to buy now and refinance when mortgage rates begin to lower.
For those who would like to invest during this window of opportunity, but are not sure how to make it happen, Morris Invest can help. Our experienced team can provide you with a lucrative new construction property that’s located in a high-demand area. On top of this, we take care of all the details for you, even placing a tenant and professional property manager.
If your interest has been sparked, feel free to schedule a 30-minute phone call – we would love to discuss your goals and help you move forward in your investing journey.
Before you go, be sure to dive into the following video that discusses how to pay off a mortgage in five years or less: