[Easy Money Returns- Interest Rate Cuts Starting Sep 18th]

I have been meaning to write this post, but traveling throughout August got in the way. There was a post earlier about Macro factors and whether it is a good time to invest. I will address those concerns in this post, as well as covering an important shift in the RE market that is about to start in September.

Alright, so as you all are aware, we have been in a highly inflationary market in the last ~3 years. To battle inflation, instead of limiting money printing and increasing supply, the Feds resort to manipulating the interest rate. Higher inflation --> Higher Rate. High rates are oppressive to gross domestic production GDP, Stock Market and businesses including RE.

Think of this as a faucet knob. Lower interest rates = easier way for entrepreneurs to get funding for expansions, workforce and start new businesses, which means higher flow of commercial activities and money shaking hands. By contrast, higher rates means restricting that flow.

If you ask me the system is very flawed and interest rates should not be dictated by a centralized planning entity, rather should be dictated by the free market and competition between local banks and lenders. But that is a longer conversation about the feds, inflation, monetary policy and market dynamics that would need a lot longer to discuss. Here is why this is important though and what you should know.

*Inflation Rate*: According to the feds inflation has slowed down to 2.9% as of August. Their target is to get on the path toward 2%. If you ask me, the accuracy of the reported data is highly questionable but the general trend here is that inflation rate has slowed down. That means goods and services are not cheaper, but they are increasing in price more slowly. Inflation was reported at 9.1%+ back in June 2022.

*Labor Market*: The Feds have a dual mandate. Maintain price stability and steady employment rates. Employment has risen from 3.5% in 2022 to 4.3% now (Frankly it is alot higher because of the inaccurate reports). The department of labor have also adjusted their newly added jobs by 818,000 for the prior 12 months period ending in Mar 2024. That is almost 30% less jobs than what was reported for that period. Layoffs have been frantic and frequent in 2023 and didn't slow by much in 2024. Job market is in trouble and the Feds have known that for a while, but the inflated job number reports have been helping them keep the interest rate higher for longer.

*US & Consumer Debt*:

-US debt is at an all time high of $35 T. That is frankly less important than the interest rate on that debt. At 5.5% (Current Fed rate), the US pays the higher interest on any newly issued or refinanced debt to local and foreign debtors. That is not only unsustainable, but also spiraling our debt out of control.

-Consumer debt is also spiraling out of control, although to a lesser extend. Credit card debt is over 1T. Car debt and loan defaults are increasing. But not to the level of prior recessions. It has slowed down consumption, or at least non debt-fueled consumption. Savings rates are depleted. American consumers are now using credit card debt to buy groceries and necessities rather than discretionary goods and services. Not sustainable. Will only means default rates will continue to rise.

There are other more nuanced factors that all indicate that Feds will start the cutting rate cycle in Sep. We may never go back to the 0% fed rate and 2.75% to 3% mortgage rates but this means that we should get back to more manageable rates. Average mortgage rate is 6.4-6.6% now (conventional rate) (General rule of thumb is to add 1-2% on top of Fed rate for conventional mortgages and 2 to 2.5% for non conventional rates).

There are a lot of implications to a lower rate and to keep this post relatively contained, perhaps i will go over them in a different post. But what you should know is that now is a more opportune time to invest or at least start working on your 90-180 days to get in the market. Lower interest rates = more beginner friendly market. More properties will start making sense to invest in because ROI and cash on cash will be higher. Also lower rates will mean more sellers will consider selling if they can get a low rate for their new home or at least close to their current rate.

Downside is that you will start seeing more competition, but that shouldn't stop you. So many investors went to the sidelines in the last 3-4 years because of the higher rate which was a big mistake in my opinion. All the deals they missed out on are now eaten up by those who stayed in the game. Granted many of these deals were less profitable because of the higher rates, but these investors who bought the deals will be able to refinance at lower rates in the next 1-2 years and increase their returns + all the appreciation, tax deduction, equity build-up and debt-pay down that they benefited from in the last 4 years.

Frankly, timing RE market almost doesn't matter. Why? Because if you invest right, you will always win in Real Estate. RE prices will always go up because of asset price inflation. Yes, buying during certain times when the market is tilted toward the buyer is better than other times, but you can still win in this game regardless of when you buy or invest. This is how the game/system is setup. You could either hate it, question it and wish it were different (And you wouldn't be wrong about that) or you could learn how to take advantage of it and learn how to play the game of creating wealth. A house cost $3500 in 1900, a car cost $1000. Physical assets (and now also paper assets for the most part) will continue to go up in value over long period of time. It doesn't move in the other direction.

Figure out where you are right now and what you need to do in the next 90-180 days to secure your first property investment. If you are still hesitating, figure out why. Work on your self and financial education, find a coach or a mentor. If you want to invest super passive, invest your money with someone else to get your returns. But always do your due diligence and know what your money is going into.

It is like the old saying "Don't wait to invest in Real Estate, Invest in Real Estate and wait".

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