Real estate does have the one added advantage over other financial assets: it generally holds its value well during inflationary times. So real estate is always an excellent asset. Generally, real estate tends to retain its value during inflationary times, even as interest rates are rising. The caveat is that banks must remain willing and eager to continue lending to customers. The recession in 2008 was brought on by excessive lending and ended with the sub-prime mortgage crisis which precipitated the collapse of the property market and a mass sell-off in global assets.

As a result, tightening took place across the credit markets. The Obama administration facilitated an era of lowered interest rates, making the cost of borrowing money quite affordable. Ultimately this meant that banks, credit card companies, mortgage brokers and other lenders were able to pump credit money into the economy to fast-track investment spending, property purchases, and to shore up a collapsing real estate market.

As of 2013, the US economy was humming along. The Fed, then under the leadership of Janet Yellen decided to allow interest rates to rise. Federal Reserve Chair Janet Yellen’s policy served to discourage borrowers as the cost of borrowed money was more expensive for consumers.

The synergistic relationship between inflation-linked effects and interest-rate effects on real estate is worth explaining to the average consumer. When inflation is rising, this generally bodes well for hard assets such as real estate. When property values increase significantly, the inflation-linked higher valuation may outweigh the rising interest rate pressure on the property. In this instance, that effect on real estate can be positive. With interest rates falling, now is your perfect opportunity to refinance or to buy a new home. Talk to us we’re happy to answer any questions you may have about your dream of home ownership.

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