What Interest Rate Hikes Mean for Multifamily Real Estate Owners
October 24, 2017 | Ely Razin | Forbes
The 10-year Treasury yield increased 67 basis points in the 15 months from July 2016 to mid-October this year (closing at 2.37 yesterday), in the course of which the overnight rate has increased three times, in December, March and June. If there continue to be more rate hikes, it is possible that longer-term interest rates will rise as well.
Rising interest rates often signal a healthy economy (assuming that inflation is stable), which usually bodes well for the real estate industry. But markets can be a bit of a “mystery” even to economists, to use Federal Reserve Chair Janet Yellen’s characterization of the fall in inflation earlier this year. (For more on the connection between interest rates and commercial real estate, here’s a primer.)
If interest rates continue to rise and lenders sense the need to protect themselves against a potential decrease in property value, they could eventually tighten lending standards further and require more equity from borrowers as they seek to increase their loan-to-value ratios.
