Concrete Thoughts: Why All the Interest in Interest Rates?

For the past few weeks, one of the major topics of conversation has been interest rates and the impact they could have on the capital markets if they rise. Ironically, good economic news delivered weeks ago about gross domestic product growth, job creation and corporate earnings sent the equities markets on a rollercoaster ride, mainly based on the expectation that all of this healthy economic news would cause interest rates to rise faster, and to a greater extent, than expected.

For more than two years now, the Fed has been telegraphing that rates would be increasing with two to three one-quarter point increases per year. The positive economic news has left market participants feeling as if rate increases might outpace the Fed’s projected slow, steady climb.

The general feeling among commercial real estate players is that interest rate hikes are bad for the market. While it is true that low interest rates are rocket fuel for real estate capital markets, increases in rates are not necessarily bad.

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