The Impact of The Federal Reserve Interest Hike on the US Real Estate Sector

The plunge in dollar prices implies that most real estate firms will be forced to financial borrowing so as to keep level with the expected financial turmoil. The federal government has already signaled a rise in the overall interest rate charged by financial institutions and this is expected to greatly impact on the real estate firms who had already conducted home sales. The biting financial conditions will enable homeowners to typically take longer in order to pay the dues owed to the developers. The real estate firms in return will be somehow hand tied as they will be forced to make a balance so as not to fall into economic disarray. For the potential homeowners who would like to purchase new homes, the hike in interest rates will prompt the developers will lease few of their properties fearing that the prospective buyers will take considerably longer time to successfully complete their payments.

The housing demands in the United States have always been on the upward and this can be explained by the recent economic recovery which has resulted to a growing middle class. This may take another turn as top global economy lie China has been in for a shock as its growth projection for this year has been the lowest as compared to the last 25 years. The Chinese economic shortfall has a direct impact on the dollar prices and the raised interest rates will limit the ability of real estate firms to further expand through creation of new projects. To firms who have had a high debt level, this is a bad news as prospective home buyers are likely not to spend their cash fearing unpredictable economic turmoil as it was with the 2008 recession. As a result real estate developers will try to come to terms with the fact that home sales are expected to be in their lowest as compared to the previous years.

The stakeholders in real estate will be looking forward to seeing any economic move which would see the United States economy gaining some strength. The falling prices for commodities like oil may signal this kind of hope however only slight economic improvements can get to felt. This is due to the fact that the crops export markets is struggling with the dropping prices and this is for the third year running. A hike in the interest rate will force farmers into borrowing from their respective manufacturers. The weak oil and commodity prices will therefore throw the United States economy into a “mini-recession” economic model and this will limit the consumers’ spending. This will directly affect the real estate sector in that home sales are likely to see a considerable drop in sales.

By raising the interest rates the Federal Reserves is likely to spur some kind of inflation and as a result many firms including the real estate developers will be forced to find shelter in some cost-cutting effective measures. Cost cutting measures will imply that the affected firms will be forced into a period of low productivity and for real estate firms this implies reduced home sales as there will be less capital for creating more homes. Real estate firms heavily do rely on financial borrowing so as to keep their projects on toe. Due to the short term hike in the interest rates many of these firms will refrain from conducting more projects for being in fear that their expected profit margins will be reduced as most of the consumers will be greatly handicapped in their spending.

By raising the interest rates the Federal Reserves is likely to spur some kind of inflation and as a result many firms including the real estate developers will be forced to find shelter in some cost-cutting effective measures.

The interest hike shouldn’t be given a negative look as there are some other benefits which will positively impact on both the consumers and manufacturers. Economic analysts base their argument on the fact the United States economy is very strong and the short term hike is expected not to have any considerable effect on home sales by real estate firms. Some potential home buyers are likely not to notice this short term economic plunge that has hit the real estate firms as compared to the economic slump of 2008. Keen buyers will definitely feel the small rise in home prices but this won’t hold many of them back from purchasing their preferred homes. The Federal Reserve hopes that after this time duration that the economy will pick on an even stronger and this will mean a better business environment for the investors which real estate firms being a inclusion.

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