Interest Rates


The market currently has a fixation on interest rates.  Essentially whatever interest rates do the market reacts accordingly.  For example if rates rise, sales fall and vice versa.  Are rates really the driver of the slow down in real estate sales?  If rates fall later this year as predicted, will real estate come roaring back?  Unfortunately the “market” is oversimplifying the real estate market as there are two other economic drivers of real estate prices.


Ultra low rates distorted the real estate market


To focus solely on rates is a drastic oversimplification of the real estate market.  Over the past several years historically low rates were driven in part by the federal reserve buying mortgages in their quantitative easing program.  This allowed rates to precipitously fall to below 3%.  With rates below 3% leverage was cheap and housing demand went through the roof.

For example, with a 3% rate, you could buy a million dollar house for 4200/month.  This is cheaper than renting in many areas.  Furthermore, investing in real estate became  very profitable with such low rates. Assume you bought a 300k property, the mortgage payment would be 1200/mo and the rent would be close to 1600 a month which is more than enough to debt service.

These ultra low rates ultimately skewed the market as there was so much demand for real estate as the returns were huge on the investing side and properties were not that expensive with such low rates.  Unfortunately the party always comes to an end as interest rates have more than doubled.


Don’t believe the headlines that interest rates are the only metric to watch

With rates now back at historical levels (5-7% range is the long term average) market fundamentals matter even more and rates are no longer the only driver or real estate.   At the end of the day basic economics is now the driver of the market as prices are ultimately driven by supply and demand.  Don’t get me wrong, higher interest rates substantially impact demand, but they are not the only driver of demand and we must also factor in supply.


  1. Demand

    1. Demand pulled forward: with ultra low rates years of demand was suddenly pulled forward. The pandemic created a frenzy for new household formations for more space, privacy, etc… This huge shift in the market compressed 5 years of demand into 2 or three years.  With so much demand pulled forward, it is not possible for the amount of household formation and demand to continue.  I think of it like the auto industry.  It seems like everyone needed a new vehicle in the last two years.  Now they have one, they will not need another one for another 5 years or so.  As a result, auto sales are drastically slowing along with prices
    2. Wages not keeping up with prices: With prices pushed up so high from ultra low rates now that the economy is normalizing, allot less buyers can afford a million dollar home.  On the same example above of a million dollars, the same homes payment would now cost 6700/mo (3500 more a month); most workers did not get a 42k bump in pay in one year.
  2. Supply

    1. Considerable supply coming on the market: I’m seeing supply increase to 2019 levels in many markets and come spring will likely eclipse 2019. There was considerable speculation causing demand to spike beyond normal due to the ultra low rates which is starting to unwind.  Look for this trend to accelerate in the spring.
    2. Labor market softening which will further increase supply.  At the same time speculation on real estate is waning, actual supply is going to be increasing soon as the labor market begins to soften later this year.  This recession so far is hitting higher earners harder with layoffs at google, salesforce, etc… many of these workers could be forced to sell to relocate to other areas or because they no longer have the same income to service their debt which will further increase supply.




Focusing solely on rates is misguided.  Ultra-low interest rates concealed the demand and supply issues above.  Focusing solely on interest rates is a drastic oversimplification of the real estate market.  Over the past several years historically low interest rates distorted the market and as the market normalizes market fundamentals will play a prominent role in guiding real estate prices. Even with declining mortgage rates, the real estate market is in for a tough 2023 as supply is increasing at the same time demand is waning.  Furthermore, with inflation remaining stubbornly high and a very tight labor market, rates likely will increase again before they fall.  Even when they fall, they will not return to the pandemic lows as the federal reserve does not have the appetite or capacity for another large scale quantitative easing.


Additional Reading/Resources


We are a Private/ Hard Money Lender funding in cash!

If you were forwarded this message, please subscribe to our newsletter

I need your help!  Don’t worry, I’m not asking you to wire money to your long-lost cousin that is going to give you a million dollars if you just send them your bank account!  I do need your help though, please like and share our articles on linkedin, twitter, facebook, and other social media and forward to your friends .  I would greatly appreciate it.


Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors MagazineThe Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.


Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, and Florida.  We are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.  To get started on a loan all we need is our simple one page application (no upfront fees or other games).


Tags: Hard Money Lender, Private lender, Denver hard money, Georgia hard money, Colorado hard money, Atlanta hard money, Florida hard money, Colorado private lender, Georgia private lender, Private real estate loans, Hard money loans, Private real estate mortgage, Hard money mortgage lender