It looks like the interest rate on long term loans (i.e. mortgages) are slowly creeping higher and higher. To understand why this is happening, look to the secondary mortgage market.  As the U.S dollar continues to weaken, returns for investors in the real estate debt market diminish at the same rate.  The investor's fixed income buys less and less-- oil, soybeans, gold-- and it will not be long before the willingness to invest in a risky and tightening morgage market will have to be rewarded with higher interest rates.  Soon, the ability to buy $1 at the cost of 6-7¢ will be a thing of the past.

But there are promising opportunities in this seemingly bad news.  Smart real estate investors have the chance to acquire cash flow properties boasting 9-10% capitalization rates, while the cost of borrowing is still 2-3% lower.  With a shrinking pool of buyers, and an influx of new renters, we anticipate an increased rental income will support will support 11-12% cap rates.  In addition, as the dollar continues to lose value, the devaluation of your debt works in your favor.

Expectations are for a re-pricing of real estate mortgages following the two biggest events of the year:  the Chinese Olympic Games and the American presidential elections.  Click on the links below to read related articles:

The Cost of Borrowing

The End of Cheap Credit?

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Ofer Goldenberg is the Owner and CEO of Capital Growth Investment.