I am not a real estate, or financial professional. So I’m not going to make any predictions about the stock market, or the economy. However, it doesn’t take a genius to figure out that since the stock market has been unpredictable and volatile, real estate and tax lien investing have become more popular with the masses. More institutional buyers have jumped out of the stock market and into the real estate and tax lien investing market in a big way. This has made investing in tax liens, and investing in real estate very competitive. The other factor that has contributed to this phenomenon is that interest rates were kept extremely low for a very long time.
The prime rate is the rate that banks charge each other for borrowing money. This is also the rate that banks base their loans on. Although it is not set by the government, it tends to follow the rate that is set by the Federal Reserve. This rate has been kept close to zero for the last 7 years. Last month the Federal Reserve increased it’s benchmark for Federal Funds Rate by a quarter percent to a range between 0.50 and 0.75. This in turn effected loan rates. The Fed has also indicated that there could be 3 more rate hikes this year.
What do the rate hikes mean for the tax lien investing market?
In my opinion, this will help the tax lien investing market for the individual investor. The banks and hedge funds have jumped into the market because they can make more interest with a certain degree of safety with tax liens than they can in most other investments. What they did not count on is the work involved. On top of that they bid down rates extremely low, because it still beat what they could get over lending their money out. But when rates increase they will be able to make more money on other investments and loans.
Hopefully for all of us tax lien investors this will mean less institutional buyers in the near future. But it could take a couple of years. The Fed is likely to raise the rates in very small increaments, so it could be a couple of years before we see a rate increase of more than 1%, and we’ll probably need to see even more than that before it has an effect on the tax lien
And what about the real estate market?
Will this rise in interest rates hurt the real estate market? In my opinion, it will actually stimulate the market in some areas and could hurt it in others. In markets where houses are overpriced, and in markets that haven’t hit bottom yet, it will hurt. In markets that are
starting to recover, it will actually stimulate the buying of houses. People will want to hurry up and buy their next home before the next rate increase. I see that happening right now in my local market.
What do you see happening in your local market?
I’ll be keeping my fingers on the pulse of my local markets and let you know what I find. If you have any feedback in your market, you can always register on this blog and post your comment here. Let us know what’s happening in your local real estate, tax lien investing, or tax deed investing market.