As interest rates rise, real estate investors tend to stop deploying more capital because higher interest rates can make borrowing more expensive. This can be especially true for real estate investors who rely on debt financing to purchase properties. When interest rates rise, the cost of borrowing increases, which can make it more difficult for investors to afford the debt payments on their properties. This can lead to a higher number of delinquencies as investors struggle to make their payments.
For example, during the 2008 financial crisis, many real estate investors were negatively impacted by rising interest rates. As the crisis unfolded, the Federal Reserve increased interest rates in an effort to stabilize the economy. This caused borrowing costs to rise, which made it more difficult for real estate investors to afford the debt payments on their properties. As a result, many investors experienced delinquencies and even defaulted on their loans.
Overall, as interest rates rise, profits for real estate investors tend to shrink. Higher borrowing costs can decrease the profitability of rental properties, as investors may be unable to pass on the higher costs to tenants. Additionally, as vacancy rates increase during recessions, the income generated from rental properties may decline, further reducing profits.
TOPICS AND TIMESTAMPS:
Real Estate Slowdown 0:00
Stock Market Plunge 12:07
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