(480) 433-6036 [email protected]

Hello, fellow Scottsdale real estate investors, Ray Cutler here with United Brokers Group.  This month, I thought I would share some data and forecasts regarding interest rates and the housing market.

Below you will see a historical graph of interest rates.  As you know, our current rates are the lowest in recent history, with the historical norms running from 7%-10% (excluding the Oil Crisis bubble of the late 70s).

Please look at the historical rate chart below.

30-year conventional money is still below 4%.  Recall the conversation that began 2 years ago when the Fed started to raise rates and unwind America’s large dollar, borrowed debt.  Many thought that rates would go up along with inflation, however, so far, not much.

What’s going on?

Forbes updated forecast suggests that the Fed may be done with rates, for at least this year:

“GDP growth looks like it will come in at 2.5 percent this quarter. (See the Atlanta Fed’s GDP Now page.) The average is three percent, which the economy has reached only once in the past ten quarters.

Retail sales have flattened, with no net growth since January”.

The Fed has said they expect one more rate hike in 2017, and possibly even a second, but also that “the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.” The data will not justify another rate hike this year.”

Kiplinger has similar views:

Long-term interest rates should rise a small amount by the end of the year, but the lack of pickup in inflation, and continuing economic and fiscal policy uncertainties will likely limit the increase. This should still be the case even when the Federal Reserve raises short-term rates or limits its securities purchases.”

Personally, I think we can thank the country’s low GDP growth for our low, low rates.  This means we should watch GDP closely for any indication of potential rising rates.  In the meantime, the interest rate picture, combined with the ongoing housing shortage is good news for the real estate investor.  Rental rates are going up along with appreciation.  Bad news if you’re renting, but good news if you are the landlord.

Below are 2 graphs that I think say it all when it comes to long term investment value.

The first is the historical rental $ rate for all Scottsdale homes priced between $1000-$2500/mth.  From 2014 to today rents have risen ~.15 per sq. ft., a very nice, ~5% per year increase in rental income appreciation.

 

The 2nd chart is Scottsdale home price appreciation, overtime for homes between $200K and $1 million.  Using the same years of 2014-today, we see an increase of ~$20 per sq. ft. or an increase of ~10.8%.  For these graphs, I used a very wide swath of rent and home price ranges.  These wide ranges can be “dialed in” to produce different rental rates of return or, home appreciation rates by looking at specific zip codes and price ranges.  Many specific areas and prices behave differently overtime, and we simply need to monitor these to choose the greatest, predictable ROI.

What I really like about this picture, and want you to take away from my analysis, is the double positive of demand driven rental and home appreciation.  Combine those with our low, low-interest rates, and you have a perfect trifecta of investment value, rising rents (income), rising portfolio value (appreciation) and low costs (very cheap money!)

Maybe it’s time for you to expand your real estate portfolio?  Any questions, please reach out to me either by phone or email. This is Ray Cutler, United Brokers Group, and I’m here to help!