The Days of Free Money are Over

Yes, when interest rates fell to near zero, or in some cases actually went negative, that was literally free money for anyone who had the capacity to borrow, and a lot of folks had the capacity.

The recent rise in interest rates has been attributed to a number of factors, including the end of quantitative easing and the rise of inflation. This has led to a significant increase in the cost of borrowing for consumers and businesses alike and has put an end to the era of free money.

Add on top of record low interest rates a flood of Government Capital injected into the banking system to support Covid programs, well you have the recipe for very high home prices in Commonwealth counties, like Canada, Australia, and the UK. Not to mention the US where Residential Real Estate has become a blood sport of sorts to see just how ridiculous house prices can get in some markets.

With mortgage rates on the rise, some have predicted that home prices will start to fall. However, this is unlikely to happen by more than 5 or 10 percent. The reason is that there are still more buyers than there are homes for sale, so demand remains high. This means that prices are likely to stay stable, or even increase slightly in high demand markets, despite the rise in mortgage rates.

Of course, the situation could change if more homes come onto the market and buyers start to feel squeezed by higher mortgage rates.

Here’s the thing, there is still, and will remain for the foreseeable future, a housing shortage. Yes the market is slowing in terms of sales, but this has far more to do with capacity to purchase as so many potential first time buyers have been locked out due to the extremely high costs of residential housing.

Rising interest rates will have a bigger impact on consumers, especially those who are carrying debt. The reason is that when interest rates go up, so do the minimum payments on credit cards and other loans. This means that people will have to pay more each month just to keep their debt from getting bigger.

To amplify an already bad situation for buyers (which drive any market and in turn home prices), rental rates have skyrocketed in tune with higher home prices. If Renters are having to pay more in higher rents and other costs of living, the likelihood of saving for a down payment for a first home diminishes rapidly.

As the days of free money come to an end, we are already seeing a dramatic slowdown in the purchase of new homes. While some analysts believe that home prices will recede, we believe that this is unlikely given the current shortage of affordable housing. In fact, we predict that home prices are likely to remain flat over the next 5-6 years. This presents a unique opportunity for those looking to enter the market or upgrade their current home. If you have been thinking about buying a new home, now may be the time to act.

So, where does this leave us. Basically, as far as I can tell we are in for a Real Estate market that has seen its highs for a long time to come. Prices will settle back some but are not going back to where they were pre-pandemic. Much lower sales volumes will be the most noticeable effect on the housing market for the next 12 – 24 months, and we can already see that taking place in many markets. We can expect much lower sales numbers with most home prices stabilizing until interest rates also stabilize or even ach down which is what is expected to happen in 2024.

In conclusion:

The recent rise in interest rates is a mixed bag for mortgage home buyers and sellers. On the one hand, higher mortgage rates will mean higher monthly payments. On the other hand, prices are unlikely to rise, so buyers will still be able to find affordable homes. And while consumers will feel the pinch of higher interest rates on their debt, the impact is likely to be manageable. So while the era of free money is over, mortgage home buyers and sellers can still find good deals in today's market.

Thank you for reading! I hope this was helpful. If you have any questions or would like to share your thoughts on this topic head to our group facebook page were we share our ideas and thoughts.

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