It’s still not clear exactly how the increase to the debt ceiling will affect the behavior of the American economy. The long term effects of this change are difficult to predict in the global marketplace, but there are three ways this increase could significantly affect the multifamily industry. Changes in the mortgage rates, falling stock prices, and the behavior of international investors may all indirectly affect the multifamily industry. Over the next few months, the nation will find out what some of the repercussions of an increased debt ceiling are, but until then, we can only speculate about what kinds of changes we might see. Predicting the economy is a bit like predicting the weather in that regard, we can see the patterns of influence amassing into storm clouds, but whether or not it will rain is still anyone’s guess.
When the news first hit that the debt ceiling would be raised, economists were concerned that long-term mortgage rates would begin to increase. After a week with a higher debt ceiling, however, it doesn’t appear that mortgage rates have increased. The number of people buying new homes remained steady, though low, which could indicate that rates may remain stable over the next few months. If rates do rise, it could send potential home buyers back into the already saturated rental market, forcing rental prices up as the demand for rentals surpasses the supply of units available. This situation would benefit multifamily companies, though it may make it harder for people already struggling to get by to afford rent.
Stocks have been falling since the announcement the debt ceiling had been raised. For many people, this could mean a loss of net worth as well as a loss of income. Families that are already teetering on the edge of financial stability could find themselves in financial trouble over the next few months, a situation that will likely lead to further foreclosures. These families are likely to move into apartments or other rental units in order to save money and get back on their feet. Again, this increase in demand will lead to increased rental rates in many parts of the country.
Uncertainty in the Global Market Place
The United States was recently downgraded from an AAA credit rating to an AA+ rating. Though this doesn’t seem to have had an effect yet, it’s not clear how this downgrade will affect the way foreign businesses invest in the United States. It is possible that this downgrade will not have much of an effect on the day to day lives of Americans but it is also possible that it could lead to further financial hardships, whether through the loss of jobs or the devaluing of business and property. If this happens, it could hurt the already ailing housing market which would push more people into the rental market. Only time will tell how the global community will respond to this downgrade.
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