Q: What will interest rates do over the next 12-36 months?

A: Who knows?

Notes/Thoughts:

• Rates are still historically low.

• The consensus believes rates will continue to increase for the foreseeable future.

• The Fed has indicated it’ll continue to increase the federal funds rate in an effort to curb historic inflation.

• Steer clear of anyone that claims they know when rates will fall. Unless they’re approaching billionaire status and/or have a mega yacht in the Mediterranean it’s highly unlikely their opinion is worthwhile.

• In the event of a recession the Fed MAY slow down rate increases and possibly reverse course.

• Former chairman of the Federal Reserve, Paul Volcker is considered a “hero” by some and credited for curbing raging inflation with his rate hikes during 1979-1981. The current fed chair Jerome Powell has indicated he “greatly admires Volcker” and intends to pursue a similar policy.

Q: What will the real estate market do the next 12-36 months?

A: Who knows?

Notes/Thoughts:

• Inventory is increasing but supply is still constrained. It is very expensive to build homes and there are labor & material shortages.

• Michigan’s property tax structure (more to come later on this) and recent historic low rates will keep many people in their current homes longer than they expected.

• The rise in interest rates makes home ownership much more expensive. On a $500k home borrowers are now paying ~$800/month MORE than they were just a few months ago.

• Job loss can make inventory available quickly. More inventory + high rates could lead to a drop in real estate values.

• A seller’s market can become a buyer’s market VERY quickly – markets can turn on a dime.

• Lending standards are MUCH stricter than they were the last time real estate values plummeted (2008-2010). It is much more difficult to obtain a mortgage and borrowers currently have much more equity than they did leading up to the great recession.

About Me: I run 191 Real Estate a real estate investment and management company which invests in commercial and residential real estate in Michigan and Florida.  I am also a partner at Hill Mortgage, one of Michigan’s fastest growing mortgage brokerages.