Global Economic Insights: The Impact of U.S. Interest Rate Increases in 2018 on Global Housing Markets
In the latest edition of Global Economic Insights, LeadingRE’s Chief Economist Dr. Marci Rossell, Ph.D., addresses how the increased mortgage rate in the U.S. is the single biggest force moving housing markets globally.
The largest factor impacting housing markets globally in 2018 was interest rate increases in the United States. The U.S. Central Bank raised the Fed Funds Target Rate three times over the course of the year and is expected to raise it again in December.
Global investors have three main choices for allocating their portfolio:
1. Bonds
2. Stock Markets
3. Real Estate Markets
After the financial crisis of 2008, the Federal Reserve dropped the Fed Funds Target Rate very low. This rate decrease forced global investors out of bonds and into stocks and real estate, helping those markets recover.
With four interest rate hikes in 2018 totaling 100 basis points, the Fed Funds Target Rate sits above 2%, which is the often the tipping point for portfolio allocations. Global investors are more willing to purchase U.S. bonds instead of investing in stock and real estate markets. In turn, we’ve seen money flow out of stock markets worldwide. As of the end of November, stock markets are down everywhere except in the United States, which also means money has flowed out of real estate investments.
Contact Christy and Garth Gillespie for more information on the real estate market.
