Due to the US’s downgraded S&P credit rating, interest rates will rise, but the question is when and how much. Opinions vary about the significance of this historic event, but all agree it will have some effect on real estate, both residential and commercial.
DSNews.com reports that on Monday, the S&P downgraded credit for Fannie Mae, Freddie Mac, and 10 of the 12 Federal Home Loan Banks from AAA to AA+, sending shock waves through the market and resulting in decreased yields on US Treasuries.
Some experts expect interest rates to climb 500 basis points within the next six months. Others disagree. The National Association of Realtors expects that within the next 3-5 years, loan demand will be much higher and at that point the downgraded credit rating might contribute to higher interest rates. Analysts say if Moody’s and Fitch downgrade US credit, the impact could be more drastic. National Real Estate Investor reports the impact on potential multifamily borrowers:
“The emerging consensus among the U.S. commercial real estate community is that long-term interest rates will begin to rise in the near future. This is especially true for multifamily borrowers who have relied on Fannie Mae and Freddie Mac to finance their projects.”