A look at the prospects for interest-rate policy and its consequences for the (international) property industry
In mid-September 2018, it will be ten years since the bankruptcy of the US investment bank Lehman Brothers first brought the major financial crisis to a head. The interest-rate policy of the leading central banks is, however, still in crisis mode—more or less.
The Federal Reserve already started raising the base rate at the end of 2015. As a response to full employment and a normalization of the rate of inflation, there have been several more increases since then. In 2018, the base rate will probably be raised four times, with further increases to follow next year. But this does not mean that it will reach a level critical enough to have a noticeable impact on the US real estate market. However, interest rates are also rising in the US capital market. Interest on ten-year treasuries has already touched the 3-percent mark, while Federal bonds with the same maturity have stubbornly remained way below 1 percent.
Monetary policy turnaround not the biggest problem next year
As I had predicted at last year’s Expo Real, the ECB is finally getting moving as well. Its bond purchase program will terminate at the end of the year and a first base rate increase is expected for 2019. This very leisurely monetary policy turnaround will certainly not be the biggest problem for property investors next year. After all, interest rates will stay very low for the time being. The economy is, however, slowing down slightly. Increasing protectionism and an escalation in the trade conflict with the US certainly pose greater risks.