May 1, 2023

How Interest Rate Hikes are Affecting the Real Estate Industry


The real estate industry is indeed facing a challenging time due to various factors [1]. Rising interest rates, inflation, and supply chain disruptions have been identified as key issues that are impacting real estate development [2]. The effects of rising interest rates are particularly significant as they can lead to a decline in homeownership affordability, which can result in higher demand for rental properties [2]. As a result, real estate investors have been turning to rental properties as a viable strategy to profit during rising interest rates [2].

Inflation is another major challenge that is affecting the real estate industry. The shelter index, which includes housing costs, increased by 8.2% over the last year, accounting for more than 60 percent of the total increase in inflation [3]. Central banks are trying to slow down the economy by making borrowing more expensive, which can result in higher interest rates [3].

Supply chain disruptions have caused a shortage of materials and labor, leading to delays and cost increases in real estate development. These challenges have made it difficult for developers to build new housing units, exacerbating the housing shortage issue in the US [2]. One way to address the housing shortage issue is by investing in rental properties, which can be a viable strategy to profit during rising interest rates. Additionally, increasing the supply of affordable housing can be achieved by providing incentives for developers to build more affordable housing units, such as tax credits and subsidies [2].

In summary, the real estate industry is facing numerous challenges, including rising interest rates, inflation, and supply chain disruptions. However, despite these challenges, there is a need for the industry to pick up the pace again as the US faces a housing shortage issue. The real estate industry can address this