In real estate, we focus on the harm of higher interest rates – higher mortgage payments, less buying power, and fewer refinances for lenders. But, there are some good things for the economy overall that come from higher rates, and this benefits real estate in the long run.
Here are a few benefits of higher interest rates:
1. Savers and Retirees get higher returns. They get pummeled when rates are held artificially low.
2. Inflation stays under control. Pushing rates up before inflation rears up is extremely important, as it wreaked havoc on our economy in the 1970s and early 1980s.
3. More lending. When returns are too low, banks are less likely to risk lending money. Bank lending is a key job creator, especially when it involves small businesses. And more jobs mean more potential home-buyers and a more dynamic economy (with more buyers moving). This is very good for real estate.
4. Strong dollar. Higher rates make the dollar stronger, making imports and traveling abroad cheaper.
5. Investors focus on fundamentals as opposed to speculation. This is more important than most people realize, but when rates are held too low, investors chase returns any way they can, and often in the form of speculation that does little to spur economic or job growth. Higher rates force investors to consider more traditional investments like factories and stocks based on fundamentals.
6. Fence sitters get off the fence. There are many fence sitters who will buy now before rates go up further.
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