Do You Have A Real state Investment Strategy?

It’s time to start making plans for your investments for the year ahead and the best way to make the most of your money in light of more volatile market conditions coming up.

Last month, I wrote about the economic conditions and the best way to make sure you are able to tie your year-end financial plans with the rising interest rates with an eye on. This month, I’ll start this new calendar year by examining some of the key elements that affect the current economy and how to make money from a down-trending market.

Let’s Get Started.

The Age of Rising Interest Rates

In this year, we examined the yield curve, which is a financial tool utilized extensively by analysts in order to forecast future recessions. We found that the yield curve was heading towards an inversion, as the rates for short-term loans are rising more quickly than long-term rates. Many experts believe that the economy will officially begin to slow down in October, with an expected inversion during the month of October. It’s not surprising that the market for stocks has been a fantastic bull market for the past 10+ years, but as the saying goes, “everything that’s good has to be a stalemate, and that’s what’s happening.

The Fed has been increasing interest rates at a rapid rate for the past few years, averaging more than 200 basis points. Recently, they have announced that they will slow down rate increases due to the fact that it has weakened some segments in the economic system (which is a good thing) but the bottom line is the interest rate will increase… just at a slower pace. Let’s look at how this could impact market affordability and the earnings of corporations.

Impact of Rising Interest Rates on Market Affordability

Since economic growth has been booming over the past few years the unemployment rate has remained at a low level and, when rates of interest begin to increase, the likelihood of the rate of economic and wage inflation dramatically rises.

In the last couple of years, you may have been eligible for a 30-year fixed mortgage of 3.25%. However, today, with rates increasing to 5 percent (nearly an increase of 50%) and you’re now having to pay 50% off the amount you pay for the mortgage. This means that buyers today earning the same income as previous buyers are unable to afford the same price for a house due to the increased mortgage payments.

At the present, wages have remained at the exact level (rather than increasing as was predicted) and therefore the market is becoming less affordable and people can’t spend the same amount of money as they did previously. In the end, certain areas of the economy are beginning to decline, like builders’ stocks. The past was when builders were focusing on high-end homes since the economy was strong and the people could afford these homes. As prices drop and builders are now focusing on affordable housing to meet the market.

*Investor Notes: It is important to keep in mind that a decrease in affordable is a worldwide problem, with certain markets more affected than other markets. For instance, coastal markets are more prices than those inland markets. With the affordability of housing declining, what happens to the earnings of corporations when interest rates increase?

Impact of Rising Interest Rates on Corporations

In the event of wage, inflation, consumers benefit from more purchasing ability because they have more money available in their bi-weekly or monthly paychecks. What happens if the opposite is true? The earnings of corporations are impacted.

Corporations are able to purchase a variety of bonds. Some are called term bonds, while others are credit lines. If the Fed raises interest rates by about a quarter of a percentage for the corporate line of credit increases while the service for debt is increased instantly. To emphasize the point, corporate bonds are highly susceptible to changes in interest rates.

For the 3 and 5-year bonds, upon the date of maturity, they’ll have to pay market rates to renew the bonds. The effect of higher rates of interest will be more debt service for corporates for up to a year or two when the bonds mature. Overall, the earnings of companies are impacted by higher interest rates. However, higher rates aren’t the only reason for the market’s slowdown…

A Weakening Global Demand

If you’ve been following the news in the last couple of months, you’re aware of the dangers of trade conflicts between America as well as other nations, particularly China.

The effect of the trade war results in the risk of uncertainty. This uncertainty poses a greater risk to the economy than paying for higher tariffs because investors aren’t sure what sector in the market will get affected, or enhanced.

Investments Strategies cannot be made when there’s uncertainty about the world trade system. Companies aren’t able to make decisions about production because they aren’t aware of how tariffs affect their demand and supply. Within the U.S., corporations are currently imposing layoffs as a result of trade wards, which is causing a further headwind to the U.S. economy. The rising interest rates, as well as trade wars, are both indicators of a recession, not leading indicators. The result of these events is that the economy will begin to slow down, and employment figures will start to fall. The unemployment rate will not be at an all-time low.

After all that is stated, how do you react to a market that is going down for investors? In the next part, we’ll look at various ways to protect your investment portfolio in uncertain market conditions.

Vairt is Crowdfunding Platform for investing, tokenizing and liquidating real estate assets through Block chain. Once you are ready to make an investment, you can make an investment in less than 2 minutes. Sit back and relax as your property gets funded. Vairt analyzes property investment opportunities using a 100-point proprietary screening tool and independent third-party market data to assess the investment attractiveness of each property. We give you the opportunity to Invest in Real Estate for as little as $5000. All properties on our platform are listed for 30 days to give investors ample time to raise funds.