Only a few weeks ago the move by the US Federal Reserve to increase US base rates was accepted as a sign of things to come. Indeed some analysts had already pencilled in four relatively small increases during 2016 as the worldwide economy was expected to get back on track. However, it now appears that the US authorities may have “jumped the gun” amid concerns that the Chinese economy will impact worldwide economic activity.
Indeed, some experts have gone as far as to suggest the US will very soon return to recession. Where this would lead US base rates and the future direction of the US Federal Reserve monetary policy remains to be seen.
US property prices
While the performance of US property prices has been varied to say the least there are serious concerns that current low levels of inflation will impact short to medium-term growth. While high inflation is a bugbear of the investment markets there is a need for a reason the level of inflation to keep the property market pushing ahead. Inflation allows rents to increase which has a direct impact upon theoretical property values. So, where does this leave the US property market?
Which way will the US property market go?
An extended period of relatively low US base rates will help those looking to invest in property by keeping financing costs low. This will feed demand for US property although if the recent economic expectations prove correct there could be a general slowdown in the US economy. Even though some experts are predicting a return to a full-blown recession in the US it is too soon to say this with any real conviction.
If the inflation concerns are overdone, if the US economy remains positive then the extended period of low financing costs will play into the hands of the US property market. There are also other issues to take into consideration for foreign investors such as the recent slump in the dollar exchange rate.
Whether or not the worldwide economy slips back into recession is neither here nor there at this moment in time. In the immediate future it is more the change in investor sentiment which will hit markets with economic factors played out at a later date. The greater the concern amongst investors the less demand for property and other assets.
Even though many experts continue to focus upon the Chinese economic challenges it is worth noting that the European economy is not looking too healthy at the moment. Any further downturns in the performance of the European economy in the short to medium term will place the Euro under further scrutiny. It may well reignite underlying concerns about the long-term future of Europe, the Euro and leading members such as the UK.
At this moment in time it is difficult to say with any real confidence how the worldwide real estate market will perform. However, one thing we do know is that historically low financing costs are likely to continue for some time to come.