Fed signals for increase next meeting
With stagflation just a definition away, the Fed is signaling that this next meeting will bring rate hikes to combat higher inflation. The Federal Reserve is now warming up its talking points to investors who are weary of inflation especially with the Federal Funds rate at 2%. Some input from the Federal Reserve Board might have merit, that even with a lower rate, the inability to get credit for most consumers is keeping inflation lower than what is expected.
A higher federal funds rate will help calm the nerves of investors but its sure to put another dent in the beat up market that is real estate. The real estate market is finally due for a true correction, many homes have appreciated three or four times over in price while the slowdown only took 20% off their top values. There is still a long way to go before the real estate market rebounds, especially with higher interest rates. I wouldn’t be buying a home in Malibu or investing in high valued REITs until the market settles a bit more. The bottom will continue to drop out from under these holdings.
Raising the federal funds rate will ultimately result in more defaults and foreclosures on loans are adjustable rate. The overwhelming majority of defaults still have not been foreclosed upon, once these homes make it to the marketplace the real estate market will be swamped with foreclosure priced homes. All homes will have to be adjusted down in value just to make a sale. This is the biggest fear that comes with a higher federal funds rate, higher foreclosures and more downward pressure on real estate transactions.