Could we be grappling with double digit interest rates in the months ahead?
If so, what will that mean for the real estate and debt markets? How will it impact investors?
Many of today’s real estate and mortgage professionals, investors, and home buyers and owners have not lived long enough, or been in the business long enough to realize such high interest rates are possible. Never mind understanding what it will mean financially.
Extreme Rate Hikes Could Be Necessary
More economists, analysts, and banks appear to be concerned about high and accelerating inflation.
Both Home Depot’s founder and Bloomberg have posited that getting inflation under control will not just take rate hikes, but raising interest rates to match inflation.
Of course, there is some debate over how high inflation really is right now. Officially inflation has been quoted to be around 8.5% and growing. That would require almost tripling rates from recent lows.
In reality we know that most things have been going up by 30% to 100% per year. Including insurances, rents, groceries, and gas prices.
Are Rates That High Really Possible?
If you haven’t lived through them before you may think rates this high sound absolutely insane and impossible.
Just check out historical interest rates and it may be a big wake up call.
According to Macro Trends, the Federal Funds rate was over 22% in 1981. It was over 10% in 1991.
In January 2021, 30 year mortgage rates were just 2.74% according to Freddie Mac. They were over 8% in 2000. Over 16% in 1980.
The Effects Of Extreme Rate Hikes
Rapid rate hikes may reel in consumer spending and borrowing.
You can also imagine the impact for anyone with an adjustable rate mortgage loan, or floating rate equity line of credit.
It is very easy to see more distressed acquisition opportunities, tax liens, and foreclosures on the horizon.
High rates will eliminate home buying power for many. That will mean renting will become more attractive, which benefits landlords, and owners of multifamily apartment buildings.
Buying and holding mortgage notes could become much more attractive with very high yields. At least if you have the connections to access the best value deals.
There is no telling how high rates will go, and how fast. Though if inflation is to be slowed at all, they will have to be raised.
Find out more about investing in secured debt and real estate, go to NNG Capital Fund.