Why interest rates and the real estate market matter to your sm

The Federal Reserve has decided to raise interest rates in the US again, citing economic indicators that show growth. This is the fourth such move this year, and experts are expecting a couple more hikes on the way.

The reason this concerns me is that one of the most obvious results of the Fed raising rates is that the interest rates on mortgages go up… when these go up, the real estate market tends to suffer. (To wit, the main reason for the huge housing boom over the last few years– despite an otherwise weak economy, was because interest rates were so low that buying a home was more affordable then any other time in first time home buyer’s life times.) So why does the real estate market matter to your small business? Two words: Home Equity.

There are a lot of people out there without jobs. There are people out there that are making less than they used to. However, the one thing they’ve got going for them is a huge amount of equity in their homes– the value of their house just keeps going up and up… and they can leverage this growth by getting loans based on their equity. People also re-finance their old mortgages at today’s dramatically lower rates, and pull out some cash in the process. This cash is up for grabs– and represents a huge percentage of the “disposable income” (in quotes because it isn’t really income) that you as a small business are targeting. Your business is probably more reliant on money that came from home equity– either directly or indirectly– than you think.

So what happens if houses don’t go up in value over the next year? Even worse, what happens if the value of homes in your area actually goes DOWN? Well, believe me– that can more than erase any economic gains shown by other indicators.

I’m not saying that the Fed shouldn’t raise the rates… I’m just saying that you as a small business owner needs to keep an eye on interest rates, and the markets they impact. You need to realize how important the real estate market in your area can impact your small business, and keep an eye on trends in that market.