Many questions I get on a daily basis have to do with interest rates and what I think they will do. Here are my thoughts on the topic.
First, I believe that the rates will continue to drift up, albeit at a slower rate. Inflation has slowed but still remains above the federal reserve’s target.
Second, the need to lower rates to spur the economy is a long way away. Unemployment remains low, wages remain high and other indicators show the economy is far from being “distressed”.
Third, the dramatic increase in rates will hurt commercial real estate and that damage will soon be felt. Deals that were done when rates were low will have to be reset at a higher rate and projects that were dependent on debt will start to feel the pain. I recently saw on the news a large apartment syndicate that is making cash calls to investors to keep operations going, and another one that had to go to foreclosure.
Lastly, eventually these high rates will lead to cracks in the economy, but in my opinion we just haven’t seen that yet. Keep in mind that this rate environment is normal when compared over a long period, so don’t think we will see 3 pct mortgages any time soon.