By now, it’s apparent that inflation is here—and here to stay for a while. Just how long is the question.
Recent decisions by our country’s central bank, the Federal Reserve, show that they are starting to take rising prices seriously. For the first time in three years, the Fed increased interest rates last week and signaled more rate hikes to come.
Specifically, as the Wall Street Journal reports, projections currently call for the Fed to raise the target rate to 1.875% by the end of 2022. They also call for the rate to hit 2.75% by the end of 2023. To achieve this, the central bank would have to introduce seven more hikes of 0.25% in 2022, as well as a few more hikes in 2023.
What does that mean for us as private real estate lenders?
Since our lending rates are not pegged to government prime rates, we have A LOT more flexibility than traditional lenders. That said, we are keeping a very close eye on where the economy is headed and are ready to adjust accordingly.
But, as we mentioned in a previous blog post, we see lots of upside potential in real estate investment as an inflation hedge. Although higher interest rates may increase the cost of borrowing, investors may be able to pass along this increased cost to renters in the form of higher rental rates. It is also possible that, when traditional mortgage rates go up, fewer people can afford to purchase a home which may increase demand for rentals—putting additional upward pressure on the rental rates that investors can charge.
In times like these, we wish we had a crystal ball. But, the best we can do is keep our ears to the ground and pivot accordingly. If we can help you assess a potential deal, please let us know. We are available by phone at 888.444.3160 or email at info@gonavcap.com.
We are all in this together!