The US Federal Reserve has just lifted interest rates by 25 basis points, this is only the third time the Fed has lifted rates since the GFC. Home Loan interest rates will also start to rise as well. Investors and homes owners need to be aware this could have a dramatic impact on their wealth if this is the start of interest rate normalisation.
Interest rates have been declining for decades and few have experience in dealing with a sustained increase in rates and the impact it will have on asset values. If Donald Trump succeeds in making America great again and the American economy grows at something like 4% the Federal Reserve will have no option but to continue to normalise interest rates.
The amount of debt households are taking on around the world is staggering and any interest rate increases will impact on their lifestyle. Those with too much debt will pay a high price if they are unable to service the debt load taken on.
House prices in Sydney are out of this world with first home buyers being locked out of the market, this maybe a blessing as if you would want to take on a million dollar loan. Every 25 basis point increase would cost an additional $208 per month in interest payments. If rates normalised by 200 basis points (That’s only 2%), the additional monthly interest would be $1,667 per month. Ouch!
Landlords who are highly leveraged would also be at risk because it would be highly unlikely they would be able to pass the additional cost of the interest rate increases to their tenants.
Try getting the same price you paid for the property if you had to sell.
Stock market investors would not be immune as their any many interest rate sensitive stocks listed on the market, many mum and dad investors would not be aware which stocks would be at risk. Find someone who can advise you on the stocks you have in your portfolio. This is especially valid if you have concentrated your investments in a small number of stocks or only one.
Again, Beware of rising interest rates.
