Staying on top of the current movements in both the financial world and in the real estate world is essential for ensuring that you, as a borrower, are able to make the most of your property investments. Commercial mortgages, just like any other economic indicator, have ebbs and flows.
After the real estate market crash in 2007, and the subsequent decline through 2012, real estate and property investments have surged back to reach pricing that was very unexpected in the days following the steep decline. However, as with any type of economic surge, there will come a time when that expansion begins to contract.
As a borrower and real estate investor, it is critical for you to stay on top of the tends in commercial mortgages so that you can be as prepared as possible to adapt your strategies to best take advantage of the market, whether it be expanding or contracting. With the market beginning to slow, it is important to examine what this might mean for what comes next.
It is no surprise that many investors turn to real estate as a lucrative investment option. It offers a great deal of stability, relative to the market, and it has consistently provided a source of income, as families always need places to live and businesses always need store front or offices spaces to effectively run. Commercial real estate has continued to grow at a slower rate in the past couple of years, but it is growth, nonetheless. However, the growth has become slower in both 2016 and 2017. For those in the business of commercial mortgages, this is usually understood to mean that a change in the market is soon coming.
While the recent election of Donald Trump to the presidency has had positive impact on the business, and therefore real estate, confidence, there has also been some concern over the potential for an increase in inflation with the rapid growth for which he has been advocating. This is especially worrisome for those dealing in commercial mortgages, due to the fact that threats to inflation often have the consequence of the Treasury raising interest rates in an effort to stabilize the impact. Obviously, rising interest rates from the Treasury department will have a restrictive effect on the real estate market, as fewer individuals and businesses will seek funding, creating a very competitive environment.
What are the potential market reactions to the economic impact on commercial mortgages?
There are not too many directions for the real estate market to steer away from the current trajectory that it has been following for the past few years. One would be for the market to adjust. This usually means that one portion of the market alters to meet the demands of the others. Real estate prices might rise, for example, to further slow demand, rather than continue to build the bubble. Another is a market correction. This is the much more dangerous option, as it could potentially lead to unforeseen consequences. The most recent market correction came in 2007 and 2008, when the housing bubble burst, leading to further economic chaos. In either case, there is certain to be an impact on commercial mortgages.