Interest rates

There is a lot going on with interest rates right now. Rates for commercial investments have spiked almost double in some cases. Three months ago, we were placing hotel debt in the low to mid 4’s and today we are in the mid to high 6’s.

What many in Washington seem to forget is that there is a large percentage (35-40%) of the population that once lived off the interest of their saving accounts. Years ago, it was not uncommon to get 10% interest on your savings at the bank. For the last five years interest rates on savings are virtually less than 1 percent. People wonder why the public markets are still active, well it is all those people who used to get high interest rates on savings are now forced to turn to the bond and stock market for income. This too is changing quickly with the volatility of stocks.

Low interest rates certainly help investors and home buyers which is why we have seen a large spike in housing values over the past two years but even that is now slowing because the same home loan last year at 3.5% is now close to 6%.

The news talks a lot about inflation which today is a real problem. When businesses, home buyers, car buyers, consumers etc. can get loans at very low interest rates, guess what? They buy more and borrow more which drives up the price on almost everything. This why the Fed has increased interest rates at a greater clip than almost any period in the last 40 years because they need to slow commercial investing down which slows demand and therefore brings pricing back down to the normal range, i.e., inflation.

I am just a little hotel broker so what do I know? I do think if there was ever a time for some common sense, now would be a good. KT

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