The last couple of years have been interesting in the land market. Low-interest rates and high buyer demand have created serious competition and made it more difficult for buyers to get a great deal. It is reasonable to ask how prices will change with record-breaking inflation, rising interest rates and a growing market for land.
We will only know what the future holds for prices. But, it’s possible to believe that rising interest rate may be a win-win situation for frustrated buyers.
In February, the Federal Reserve declared that it would raise interest rates multiple times this year. March saw the Federal Reserve announce a 25-basis point increase. This was the first federal interest rate increase since 2018.
These increases are in direct response to inflation. They are designed to help the economy recover by slowing down economic growth and decreasing consumer spending. The interest rates on everything, from auto loans to credit cards, are expected to continue rising. These rates will affect personal and mortgage loans, which could be used to finance land purchases.
Although we have enjoyed low interest rates for quite some time, if you are trying to purchase land, you will know that there is a downside to higher spending power.
Due to low interest rates and growing interest in land investment, there has been intense competition for properties. The REALTORS Land Market Survey shows that land prices increased by 6% between 2021 and 2021. This is second to single-family rental unit price growth. This is a steep incline, and not great news for land buyers without the capital to invest.
Higher interest rates could be a boon in this situation. Rising interest rates can help level the playing field and hopefully bring down prices by increasing borrowing costs to purchase land. Sellers don’t have the luxury of spending more money, so they can’t overvalue their property in the knowledge that someone will pay it. Higher interest rates will also help to reduce the likelihood of buyers driving price escalations or over-bidding.
While higher interest rates do not necessarily mean that you cannot afford to purchase land, they do indicate that you will need to be realistic about how much you can spend on it. Start your land search by determining how you will finance it. This includes where and how much you can borrow. Remember that interest rates are likely to rise through the end of 2022. So give yourself some leeway and don’t expect rates to stay high for too long.
If you have been on the market for a while and are having a difficult time because of high buyer demand, rising rates will help to bring things under control. If you are interested in seeing how prices react, wait a while and keep your eyes open for the perfect property with a great price.
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