Many landlords overlook the impact that interest rates can have on their rental. After all, unless you’re looking to purchase a new property, mortgage interest rates may not seem relevant. However, interest rates can considerably influence the housing market, which will eventually impact the rental market. Understanding how interest rates will affect your rental can help you make informed decisions and get the most out of your property. Here’s what property owners need to know about interest rates and how they can impact your rental.
What Causes Interest Rates to Change?
Sudden changes in interest rates may seem arbitrary, but they actually happen for a number of reasons. Here are the main factors that can cause interest rates to change:
- Supply and demand: Any time there is a sudden spike in the demand for credit or loans, interest rates will increase – and vice versa.
- Rate of inflation: Inflation decreases the spending power of the dollar over time. To combat this problem, lenders will increase interest rates.
- Economic growth: If the economy is thriving, many lenders will decrease interest rates to further encourage consumer spending.
- Global factors: Foreign competition, political unrest, and other global factors can influence consumer spending and therefore impact interest rates.
- US Federal Reserve: The US Federal Reserve is the central bank of the US. When the Fed changes its interest rates, these changes will ripple down to consumer loans.
How Do Interest Rates Impact the Housing Market?
Mortgage interest rates directly influence the affordability of a home, which is why even small fluctuations can have a huge impact on the housing market. As interest rates climb, homes become less affordable for the average buyer; even a 1% raise can increase a household’s monthly mortgage payment by $56 for $100,000 that the house is worth. For this reason, rising interest rates often cause potential homebuyers to delay making a purchase.
How Do Interest Rates Affect Rental Properties?
High interest rates can have a positive impact on rental properties. Though they make it more difficult to purchase or sell a home, higher interest rates help maintain the demand for rental units, which can be very beneficial for landlords. Having a high demand allows property owners to fill vacancies quickly while remaining selective with tenants and charging more for rent.
On the flip side, low interest rates can cause a dip in demand for rental properties, which will have the opposite effect. Keeping an eye on interest rates can help you anticipate the demand for units, which will allow you to make tactical decisions as you manage your rental.
Get Strategic Property Management Services
To increase your rental property’s performance, it’s important to know how to follow and take advantage of economic trends. However, there are hundreds of factors that can impact the rental market, which is why it’s useful to work with experienced professionals. At Zenith Properties NW, we are committed to helping you get the most out of your rental while alleviating all the pressures that come with managing a property. With over 30 years of experience in the local Clark County WA markets, we know what it takes to bring your property to the next level. Just contact us today to get started!