Rising Rates and Inflation Risks

The article highlights the phenomenon of the "vicious cycle of high interest rates and skyrocketing rents" in the U.S. housing market. It explains that raising interest rates to curb inflation leads to increased construction costs and restricts the supply of homes, which then puts upward pressure on property prices and rents. With interest rates rising in September to the 3.75%–4% range, the number of new housing starts declined, while borrowing costs continue to climb, threatening to reduce future supply. Although increasing interest rates is supposed to limit demand and lower inflation, the results show that rents are not decreasing significantly; on the contrary, they may even rise due to the shortage of supply and the impact of specialized contractors and artificial intelligence on the construction market, which boosts demand for technical labor. This complicates the central bank's efforts to reduce inflation through rate hikes and makes breaking the inflationary cycle—driven by limited supply—even more difficult.

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