How Raising Interest Rates Will Impact The Construction Industry

The Federal Reserve is expected to do something this week that it hasn’t done in nearly 10 years: raise interest rates. With the job market and economy growing steadily, Fed Chairwoman Janet Yellen and her colleagues may increase rates as a symbolic sign of the improving economy and recovery from the Great Recession.

 

Watchdog Construction

 

So what does this mean for you and the construction industry?

 

First you must understand the that lower interest rates usually spur the economy by making corporate and consumer borrowing easier.  (less expensive to take out mortgage or car loan) On the other hand, higher interest rates are intended to slow down the economy by making borrowing harder.

 

Yellen has stressed in the past that they plan to increase the rate slowly overtime which will have little to no immediate effect on borrowers and consumers. Experts agree that if the Federal Reserve decides to increase the rate tomorrow by .25 which will slightly increase borrowing costs for projects, it will not have an immediate significant impact on the construction industry.

 

Construction spending is up 10.7% this year as manufacturing, hotel and office continue to steam forward. “If anything, a move by the Fed might provide a signal to nervous investors that the Fed is confident about the strength of the U.S. economy,” says Ken Simonson, chief economist of trade group Associated General Contractors. “Higher rates could also attract more foreign investors in all types of assets, including real estate.”  For manufacturers looking to expand for the fast-growing auto and aerospace sectors or office developers serving Millennials moving to cities, a small rise in borrowing costs will barely register, Simonson says.

Stephen Fean
Stephen Fean is the Vice President of Business Development at Watchdog Real Estate Project Managers, a real-estate consulting firm that provides owner’s representation and project management services. More about Watchdog Real Estate Project Managers as well as additional blog posts can be found here.
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