Will higher rates weed our economic garden? 

Fair growth policies encourage responsible financial practices and the proper balance of savings and investment.

But beginning in 2015-2016 the real estate market was flooded with easy money, especially, through smaller banks.  This also transferred to the venture capital world with many entrepreneurs able to thrive off of what are essentially grants for poorly run businesses.  This money wasn’t present in the early days of the recession recovery from 2009-2014.

Home flipping and buying-to-rent became an incredibly profitable and worthwhile undertaking.  Low rates and easily accessible loans unencumbered sales prices, and consequentially, rents.  Landlords bought tens of thousands of single family homes with easy money.  Homeowners, with low rates, were able to pay more as well, as payments spread out for 30 years at 2.75% interest rates made the valuation metric monthly payments instead of prices paid.  Appraisers, only observing the sale prices nearest the target property and not the quantity and accessibility of money, provided the plumbing for the well to flow. 

A substantial portion of U.S. housing capital stock was improved, so a drawdown in real estate prices and rents wouldn’t be accompanied by the drastic need for deferred maintenance improvements.  This would sell the resulting lower-priced homes more easily, as there will be less need for pure cash buyers.

So those landlords and businesses that were careless in hedging their interest rate and business risks but contributed to the rising rates and rising prices may also contribute now to the lowering of prices, and consequentially, rents.  Additionally, by curbing inflation, encouraging savings and sounder investment and strengthening the U.S. dollar, higher interest rates may “weed” a healthier and more resilient economic land for new plants and crops to grow.