Will Lower Mortgage Rates Mean Lower Minneapolis Duplex Prices?
Sometimes it takes me a while to find a topic for a blog post. When struggling, I do a lot of reading and watching media stories about real estate and try to decide if and how the news applies to the Minneapolis and St Paul duplex market.
In that process, I heard Pantheon Macroeconomics chief economist and founder Ian Shepherdson state on CNBC his belief that when interest rates go down, housing values would drop as well.
His theory was based on the notion that two-thirds of all U.S. home mortgages are at interest rates below 4%. As such, they have no desire to move, because they would not want to trade such a low interest rate for a much higher one. When rates drop, he posits, more homeowners will be interested in selling. This will lead to a flood of inventory, causing prices to fall.
Is this true of duplexes, triplexes, and fourplexes too?
My first thought was no.
Investment properties are predominantly valued by the return they provide to the owner. Lower interest rates would increase cash flow, as well as the overall rate of return. A greater cash flow may make many willing to pay for a duplex, as there is more wiggle room on covering expenses and realizing a reasonable rate of return.
My second thought, however, was of the many would-be duplex sellers I know right now who really want to sell, don’t have to and as a result, are trying to time the market. What if all of those fence-sitting sellers decided to sell at the same time? How would a buyer perceive value then?
I imagine they would be less decisive– that in addition to the property that offered the greatest return, they would want to find one in the best condition. They may feel another opportunity will come along and not be as motivated to act quickly and decisively.
I’m not as confident in my thinking about that side of the argument. After all, lower interest rates may result in more buyers in the marketplace as well. So who knows?
A deal is a deal, no matter the market. And if you have to sell now, this market is still strong. Properties selling in a few days or weeks rather than hours may feel like the sky is falling. But it just isn’t.
Keep your rents at or near market rates, and your duplex in good condition. You’ll be able to sell; no matter the market.