How Rising Interest Rates Can Impact Rental Market
On June 13th the Federal Reserve raised the interest rate to between 1.75 and 2 percent. This rate, which is the rate banks charge one another to borrow money from each other overnight, was lowered to almost zero after the financial crisis began in 2008. The rate was lowered to encourage lending and stimulate the economy, and seven years later the Fed began to increase the rate as the economy improved. The current Fed chairman believes the economy is near normal levels are there is an expectation that the rates will continue to increase which will lily impact borrowing costs for car loans, mortgages and credit cards in the future.
As the interest rate continues to increase it can have the unintended affect of putting more pressure on rents to rise. Higher interest rates make its more expensive for people to buy homes. If increases in rent, do not outpace increases in the cost of homes, people may be inclined to stay in rentals units which they can better afford. However, with less demand to buy homes as interest rate increases and leading to higher demand for rental units, property managers and landlords may find that they can raise rent further without worrying empty leaving units vacant.
However, it is important to note that eventually, rent will plateau as there is only so much a landlord can charge for rent before it sits vacant. However, many predict that as long as there is no increase in housing inventory rental prices will continue to go up. In fact, with both 30 and 15-year mortgage rates increase there is anticipation that rent will increase over the next few years.
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Disclaimer: The information provided in this post not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.