The New Fed Rate Hike: What Investors Need To Know
The Federal Reserve just raised rates again. What does it mean for real estate investors?
The Fed continued their rapid interest rate hike spree in December. Although this smaller half point hike was not as severe as the last one, it continues the trend, without having allowed time for the data to be published on how well previous hikes have achieved their stated objective.
Inflation
According to the Fed, the purpose of these rate hikes is focused on bringing down inflation. While it could tame some spending, higher rates typically also drive up the true cost paid for things. Which may be actually fueling inflation, rather than ending it.
Unemployment
Among the commentary on this latest rate hike is a fear that the Fed is committing to a period of high unemployment as they force employers to cut jobs.
This could be a very bad time for millions to lose their jobs. Especially with record amounts of credit card debt, and other debt which is subject to seeing repayments rise as rates go up.
If we do start seeing unemployment rise, then there will certainly be a rise in distress, and quite likely more mortgage defaults. At a minimum it should mean more motivated sellers eager to unload their homes at any number and terms possible.
Stocks Plummet
In response to the most recent rate hike 96% of the S&P 500 stocks fell immediately after the news.
That suggests investors in public stocks, including fund managers do not believe that the Fed’s monetary policy is sound, or taking the economy in the right direction.
On the bright side, when the stock market fails, many investors shift their capital to real estate. Which supports more competition and higher values. Given this comes in tandem with the crypto crash, we may see even more flight capital headed into real estate this year. Providing great exits to investors who are also capitalizing on distress caused by rate hikes.
The Stimulus Wild Card
If the economy does suffer from these rate hikes as some suspect, then there will certainly be calls for more stimulus money and bailouts to get us out of that hole.
This would in turn fuel even more inflation. Which would also be good for landlords and their rents.
Summary
While we may face an uncertain year ahead, there are plenty of side effects of rate hikes and follow up policy which could help real estate investors.
This is especially true for real estate wholesalers who have limited exposure to interest rate costs, and are not exposed to price volatility.
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