Interest Rates Rising

[Jason Taliaferro]

Interest rates are rising. Could this be trouble or opportunity for investors? Your thoughts?

[Nick R.]

I'm no pro on interest rates.  I'm bad at predicting them and even worse at predicting how society will handle it.  After the housing collapse, I take all projections with a heavy grain of salt.  All disclosures aside, I do anticipate 3 MORE rate increases from the fed this year, maybe 4 @ 0.25% each.  I anticipate the next one in mid June at the next FOMC meeting.  Will they affect the mortgage rates, who knows?  Many economists see interest rate hikes as a sign of strength in the market.  Who would buy a 10yr bond @ 2-3% when Zuckerburg just crushed 8% gains today in the midst of a publicity nightmare.  Many economists also believe that the S&P500 aggregate earnings have the rate hikes "built in" already.   

Sometimes rate hikes get 123 main street people off the sidelines too.  This causes a temporary jump in demand simply to "beat the rate".  In tight markets, this can even drive up prices, only to have the rate settle back down anyway.  

This new guy, Jerome Powell, has also taken over Janet Yellen's spot, as the chair of the federal reserve.  New fed chair = wild card.  (Especially in a Trump administration where wild cards are everywhere).  Wild cards=uncertainty and uncertainty sucks for markets.  

All this soapbox to say...  Don't try to predict the future too much.  If your market is on fire, a pullback may be due.  If you are a realtor then purchasing power for your clients may shift a bit.  If most of your clients currently only afford a $100k property, you may have a problem late 2018+.  If you are investing for appreciation, then you didn't learn your lesson 10 years ago.  Invest for cash flow and don't over leverage.  If you are trying to time the market, I would caution you to only do so on properties that would not be subject to a 1031 exchange because you are just going to need to buy back, likely, in the same market from which you are selling.  

This has been on my mind too, so I would welcome any criticism of my analysis. 

Thanks

Nick (Seattle)