President Biden signed on the Debt Limit Bill on Saturday June 2nd after Senate passed it on the night of Jun 1st, averting the prospect of US’ first default in history. The debt ceiling deal is a big win for our economy and the American people. Now, how to get ahead of the real estate market? To invest more or to wait? Invest in residential properties, commercial properties, or multi-family properties?
First, what is the debt limit?
In the US, congress controls how much money the United States can borrow. The debt limit is a cap on the total amount of money that the government is authorized to borrow to fund the government and meet its financial obligations. Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.
What’s in the legislation?
The centerpiece of the agreement remains a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. The agreement suspends the $31.4 trillion debt limit until January 2025, allowing the government to borrow unlimited sums to pay its debts and ensuring that another fight will not occur before the next presidential election.
What is the outlook of real estate investment and the key take away?
Just imagine, what will happen if the government’s default really happens?
This could cause the entire US financial system to stop functioning while people figure out how risky it is to lend and borrow. A lack of confidence in the ability of governments to pay their bills will spike. More generally, people might just stop lending, leading to a massive recession.
Interest Rates would go up and as a result real estate valuations would go down. When real estate valuations go down, people who have borrowed excessively against real estate have to make up collateral with cash.
Luckily, that scenario won’t likely happen next to our hard-earned economic progress. A few considerations for rental investors and house buyers to get ahead of the real estate investment market.
- Monitor the Market and Interest Rates
The interest rate increase will likely cool down during the summer this year. We expect an increasing inventory of available properties for sale of both residential and commercial property. Remember, monitor the market and working with a knowledgeable mortgage professional can help investors make informed decisions.
- Assess Market Stability and Diversify Your Investment
Consider diversifying real estate investments across different markets or property types. This can help mitigate risks associated with a specific location or sector.
The pass of the debt ceiling deal is a big relief to keep and boost the market stability and investor confidence. It's important for rental investors, commercial investors, and multi-family house buyers to assess local market conditions, including supply and demand dynamics, job growth, and economic indicators, to gauge the stability and growth potential of the real estate market.
We would like to share an assessment example of the Orlando real estate market. Driven by the influx of new residents and the expansion of the local economy, Orlando real estate market is growing rapidly. According to Zillow, the median home value in Orlando is $305,000, which is expected to increase by 7.5% in the next year. Moreover, the rental market in Orlando is also growing, with an average monthly rent of $1,800, which is projected to increase by 6.5% in the next year.
- Maintain a strong financial position and Be a Long-termist
The bill officially puts an end to Mr. Biden’s freeze on student loan repayments by the end of August and restricts his ability to reinstate such a moratorium, while requests for the Mountain Valley Pipeline construction, a natural gas project in West Virginia. The $6.6 billion project is intended to carry gas about 300 miles from the Marcellus shale fields in West Virginia across nearly 1,000 streams and wetlands before ending in Virginia. Environmentalists, civil rights activists and many Democratic state lawmakers have opposed the project for years.
Encountering the unexpected market trends and policies, it’s important to building reserves and having a buffer for unexpected expenses or market fluctuations to help protect profits and ensure financial stability. Be aware to have a long-term investment perspective. Real estate is generally considered a long-term investment. Focusing on the fundamentals of a property, such as location, rental demand, and potential for value appreciation over time, can help investors weather short-term uncertainties and fluctuations.
Conclusion
Hooray to the bipartisan agreement that immediately saves the nation from a possible financial crisis. It's worth noting that the impact of the debt ceiling deal on real estate can be complex and interconnected with broader economic factors. It’s essential to evaluate individual circumstances, such as personal financial situation, market conditions, and investment goals. Conducting thorough research, analyzing rental market trends, and consulting with professionals, such as real estate agents, financial advisors, as well as a legit property management company, can provide valuable insights to make an informed decision.
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