Rising Interest Rates Causing trouble for Real Estate in the U.S.

Rising Interest Rates Causing trouble for Real Estate in the U.S.
Rising Interest Rates Causing trouble for Real Estate in the U.S.

Rising Interest Rates Causing trouble for Real Estate in the U.S.

Real estate like employment is a major indicator of the economic recovery; however, according to an industry expert at the “Top 10 Issues Affecting Real Estate” session at the 2013 REALTORS® Conference and Expo, Scott Muldavin the top issue affecting real estate is that historically low interest rates have driven the economy and real estate market in recent years.

However, he says that if the rates start to rise, it could raise capitalization rates. Capitalization rate is the ratio between the income produced by an asset and its cost, and if it increases it could create anxiety about investing in real estate. He advises that as interest rates are going to rise significantly, investors need to be careful about their investments and lock in those low rates if they can.

Currently, in many markets throughout the United States, prices are rising, the rise in the construction crews have finally starting to build again. Though the Federal Reserve tried to solve the problem by aggressive and highly accommodative monetary policy wherein it provided mortgage-backed securities, set the stage for a revival of the housing market, its results have not yet been seen.


Canada Housing Market might be Slowing Down

According to the Canadian Real Estate Association, sales of existing homes in Canada declined to an extent in October from the prior month. A decline of 3.2% was recorded as real-estate activity in major Canadian cities slowed to a great extent; however, year-over-year sales rose 8.3% in October.

On the other hand, while the Multiple Listing Home Price Index obtained an increase by 3.5% year-over-year, the average, non-seasonally adjusted home price in Canada went up by 8.5%. The data compiled by the Teranet-National Bank Home Price Index released earlier in the week also show that home prices in 11 major Canadian cities crept up just 0.1% month-over-month in October.

Conflicting Views from Investors and Experts

Investors are on backseat as some predictions claim that the real estate sector is headed for a severe correction. Nonetheless, the country’s housing market is a closely watched indicator for the overall national economy and any downturn will mean further recession which may have a severe impact.

However, those who disagree with the doomsayers believe that the recent mortgage tightening efforts by the federal government compounded with demographic factors can be of great importance to avoid any such crash.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com