Virtual Round Table: What happens in the next 36-60 months?

[Sascha Weinberg]

Hey BP,

we all have witnessed what happened during the financial/subprime crisis and how RE prices crashed in quite alot of places around the globe. As it stands right now, we have a) the lowest interest rates ever, b) houseprices that in alot of places are still below the pre-crisis levels and c) rents at a level that I (being kind of new to the scene ;-)) cant really judge on.

But my point is something else. Usually, once interest rates fall so does the P+I for people who buy a house, which makes real estate more affordable for the average Joe. This in turn drives prices of Real Estate, because the demand rises. The demand for rental property is falling, but inflation keeps rental rates from falling. Now comes the interesting part which I would like to discuss with you all.

As of now, it is pretty obvious that the Fed will hike rates next spring and start a new cycle with rising interest rates. THis in turn will make mortgages less affordable, which might stop house prices from rising further or even lead to falling house prices, as demand is falling. First off, is that something people would agree on? If not, what am I missing?

My question (as a soon-to-be buy-and-hold investor), what is going to happen to rental rates? From my point of view, rising interest rates should reduce demand for mortgages (less affordable) which in turn should help demand for rental properties. Although home prices might start to fall, as a buy-and-hold investor this is something I can sit out, falling cashflow would hurt much more.

I am looking forward to everyone´s opinion and hope we can create an interesting debate about the immediate future of the real estate market in the US.

Happy discussing!

Sascha