‘Modest’ Rise in Interest Rates Forecast by Survey : Firm Finds 100 Lenders Expect Real Estate Prices to Stay High as Foreigners, Pension Funds Compete

Interest rates will rise “modestly” by the end of the year, competition between pension funds and foreign investors for prime projects will continue to keep real estate prices high and residential construction may slow as rising interest rates and high prices squeeze more buyers out of the market.

These are some of the trends cited in the annual survey of more than 100 lending institutions, conducted by George Smith/Grubb & Ellis Financial Services, Los Angeles.

Daniel Fox of Citicorp Real Estate Inc., who most accurately predicted interest rates in last year’s survey, said his 1989 rate projections will be most affected by the “Federal Reserve policy and whether or not (the Fed’s) vigilance toward inflation might not throw us into a recession.”

The 10.13% Federal Home Loan Mortgage Corp.’s 30-year mortgage rate as of the beginning of the year is projected by the survey to increase to 10.38% by the end of the year, while the bank prime rate is expected to decrease from 10.5% to 10.32% by the end of 1989.

“Our survey participants continue to be concerned about the effects the budget deficit, trade deficit, inflation, recession, Federal Reserve policy and oil prices could have on real estate,” according to Mark S. Ehrenreich, survey director.