With the exception of the real estate market in 2010 where
interest rates and housing prices were both low, characteristically, interest
rates and property values have an inverse relationship. For example, when
housing prices are high, interest rates are low, and when housing prices are
low, interest rates are high. For home buyers or private real estate investors
who plan on keeping the property for at least seven years, it is advisable to
buy real estate when interest rates are lower and property values higher because
property values generally appreciate over time. Furthermore, a lower interest
rate with a 15- or 30-year fixed mortgage keeps the monthly mortgage payment
affordable.
High interest rates affect real estate investors regardless
of whether the real estate investment is in the private market or public
market. The difference between real estate investing in the private market
versus the public market is the private market includes an investor purchasing
a real estate property himself, while the public real estate market includes
the investor purchasing a security in a publicly traded real estate company,
most typically as real estate investment trusts, or REITs.
However, for a private real estate investor who can afford a
larger down payment on the property and pay off the mortgage faster with larger
payments, it is advisable to buy property with lower property values and high
interest rates. This is because the investor can refinance the property when
interest rates go down or opt for an adjustable-rate mortgage where the
interest rate on the mortgage is below the market rate.
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