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* Sam Primm is still buying real estate this year, regardless of interest rate hikes.

* For him it’s about time in the market rather than trying to time the market.

* Prices on distressed properties haven’t gone up, but supplies and materials have.

Home buyers haven’t been able to catch a break in the last few years. First, nationwide lockdowns led to a spike in demand for suburban homes due to the need for more interior space for a home office and a preference for more outside space when social distancing.

Now, as the economy reopens and begins to recover, mortgage rates have been fluctuating quite a bit. Around this same time last year, the average 30-year fixed mortgage rate still well uner 3%, Freddie Mac historical data shows. Today that rate has increased to over 5%, according to more recent reports. While it’s a small percentage move, the outcome could translate to a few hundred dollars a month going to interest payments rather than the principal owed.

“People usually buy properties based on what they can afford monthly,” said Sam Primm, a real estate investor. “They have a monthly budget for what they make, how much they bring home, and how much they can afford to pay for housing, whether they’re renting or buying a house.”

Primm and his business partner have been investing in real estate since 2014. He interacts with the real estate market in four main ways, as a wholesaler, flipper, landlord, and educator. He primarily operates in St. Louis, Missouri.

He has felt the impact of inflation and interest rate hikes on his business. Last year, the interest rate on commercial loans he secured for his properties was about 4.5%, he tells Insider. This year that rate is anywhere between 5.5% to 6%.

While commercial interest rates are directly impacted by the central bank’s rate hikes, mortgages are not. Some home buyers and investors may be looking to the Federal Reserve to gauge when there might be a signal of relief. However, the Fed’s fund rate impacts short-term consumer loans like credit cards and car loans rather than mortgages.

Buyers who will need a conventional mortgage should pay attention to elevated inflation, which is harder to predict. Inflation erodes the returns investors reap from bonds, including mortgage-backed securities (MBS). This means lenders are raising the rates to make their mortgages more attractive to investors.

“I would tell people to just get what they can now and make sure the property still cash flows positively because if rates go up, you got your rate locked in for probably at least three years,” Primm said. “And if rates go down, which eventually they will, you can always refinance.”

While reduced buying power has led to a drop in demand, the market has remained strong, he said. He draws this conclusion from his personal experience and interaction with other investors nationwide. He’s part of a national real estate investing group called The Collective Genius which meets quarterly and discusses the real estate market.

Primm and his business partner have already purchased 52 single-family homes and one 19-unit apartment building complex this year, according to closing documents viewed by Insider. They plan to keep and rent all the properties.

Eventually, when interest rates come back down, Primm’s strategy is to refinance the loans. In the meantime, he’s compensating by increasing rents by about 7% to 8% on the new units.

He describes the current real estate market trend as decelerating rather than depreciating. The former means home values are increasing but not as rapidly as in the last two years. The latter means properties would be worth less in a month than they are today, that’s not happening, he noted.

People often get the two concepts confused, he said. This is an important distinction because if houses were dropping in value, it would indicate a potential crash in the real estate market. Instead, Primm views deceleration as a positive trend. The steep price increases seen in the last two years were abnormal and unsustainable because housing values were increasing at a rate faster than people’s incomes.

If you step away from the last two years, it’s still considered a strong market, he noted.

On average, after flipping a house, he’s able to sell it within a week, he said. In 2015, it was common for a house to take 30 to 45 days to sell, and no one said the market was crashing back then, he added.

“Rather than getting literally 15 to 20 offers over asking on opening weekend [in 2021], we are now getting two to three offers around asking or slightly over asking on opening weekend,” Primm said.

He told Insider he’s still finding great deals on distressed houses too. In fact, he hasn’t noticed an increase in asking price in that department. Regardless of what’s happening in the economy or the world, there will always be bankruptcies, foreclosures, and outdated houses, he noted.

The one thing that has shifted is a reduction in competition from other investors for these types of properties. Those who had been flipping property as a side hustle, maybe completing one or two projects a year, what Primm calls the “fly-by-nighters” have been less frequent. In part because it hasn’t been as easy to find the deals or complete a renovation project.

The cost of supplies and materials is definitely up, he noted. He estimates about a 15% increase in materials across the board over the last year. Lumber has seen the largest spike in price, followed by flooring, and cabinets, he said. Wait time for certain materials has also increased drastically. Additionally, it’s been harder to find labor, he said.