Interest rates have fallen to very low levels in recent years, driving a substantial across-the-board increase in property prices in nominal and real (inflation-adjusted) terms. With the global economy now in full recovery, some investors are concerned that interest rates will revert to pre-Global Financial Crisis levels, causing real estate prices to fall. This process has become known as interest rate normalization.
What does this mean for real estate investors? CBRE analysis has shown that concerns about rising real and nominal long-term interest rates are overblown. The likely increase in rates will be less than the consensus of economic forecasters and they will level off at well below pre-GFC levels. Here are eight things investors should know.
REAL LONG-TERM INTEREST RATES
*Full normalization is defined as interest rates returning to their 2000-2007 average.
Source: CBRE, August 2018, Consensus Economics, April 2018