Pick your poison: Strong GDP growth makes interest rate hike more likely

US economy grew at a rate of 2.9 percent in Q3

TRD MIAMI /
Oct.October 29, 2016 09:00 AM

From the New York site: New Gross Domestic Product figures released Friday showed the U.S. economy is growing at a strong pace. That’s great news for the real estate industry, right? Not entirely.

The flip side of the economy growing at an annualized rate of 2.9 percent in the third quarter – up from 1.4 percent in the second quarter – is that it makes rising interest rates more likely.

The yield on 10-year Treasury bonds (a key benchmark interest rate) rose to 1.85 percent Friday – the highest level since May. A strong economy makes it more likely that the federal reserve will raise short-term rates at its December meeting, which would in turn put upward pressure on long-term interest rates. Higher long-term rates, in turn, make real estate financing more expensive and put downward pressure on prices both in commercial and residential real estate.

“For both single-family rental (SFRs) investors and first-time buyers, higher interest rates will further tighten inventory across the nation,” Stephen Hovland, director of research at investment platform HomeUnion, wrote Friday. “Fewer SFR deals in fewer areas will pencil out, requiring additional due diligence on the part of buyers.”

But strong growth and rising rates may still be preferable to low rates and slow growth. Blackstone Group’s real estate head Jonathan Gray recently claimed that people are paying too much attention to interest rates.

There’s a (false) sense that owning real estate is the same as owning a bond,” he said in an interview with CNBC last week. “Real estate, like stocks, can see earnings growth. And that’s what we’re seeing today because of favorable fundamentals.”


Related Articles

arrow_forward_ios
President Trump, Federal Reserve chairman Jay Powell, and the Federal Reserve (Credit: Getty Images and iStock)

Fed holds interest rates steady amid housing market slowdown

Fed holds interest rates steady amid housing market slowdown
More Americans are choosing not to tap into their home equity

More Americans are choosing not to tap into their home equity

More Americans are choosing not to tap into their home equity
Strong spring real estate season shaping up — but who’s got the advantage?

Strong spring real estate season shaping up — but who’s got the advantage?

Strong spring real estate season shaping up — but who’s got the advantage?
(Credit: Pixabay)

Mortgage interest rates dropped last week and may stay down for months

Mortgage interest rates dropped last week and may stay down for months
Trump Organization could take financial hit from latest rate hike

Trump Organization could take financial hit from latest rate hike

Trump Organization could take financial hit from latest rate hike
Cooling trend could end up boding well for home buyers

Cooling trend could end up boding well for home buyers

Cooling trend could end up boding well for home buyers
Hope is on the horizon for home buyers in gig economy

Hope is on the horizon for home buyers in gig economy

Hope is on the horizon for home buyers in gig economy
Fed hikes interest rates again, raises outlook for more increases in 2018

Fed hikes interest rates again, raises outlook for more increases in 2018

Fed hikes interest rates again, raises outlook for more increases in 2018
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...