Fed raises interest rates as expected

Federal Reserve Chair
Federal Reserve Chair

Today Janet Yellen, the Federal Reserve Chairman raised the short term Fed rate by 0.25% from 0.5% to 0.75%.

This is the first rate increase since last year December 2015.

She also announced that the Fed is likely to raise interest rates again in the coming year.

Citing the improving economy, Yellen also said there was increasing employment and household spending. This led to the decision to increase the Fed rate.

What does that mean for you?

The rate hike sends a signal of increased borrowing costs in the future. As explained in another post, property purchases are usually funded with debt. Rising interest rates will increase the cost of debt. In order to make sure the property cashflow can service the mortgage, investors are likely to demand higher yields on property investments.

As we know, there is an inverse relationship between price and yield. As yield goes up, prices go down.

Overall, increasing interest rates is likely to dampen the property market going forward.

This is not to say the property market will go into a slump but the rate of growth is likely to slow down. Barfoot and Thompson and Bayleys data have indicated the sell through rates at auctions have fallen.

Although, the property market may be nearing the plateau, individual properties are still going for record prices.

Your job as a property investor is to find the investments that make most sense.

 

 

 

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