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Four For Four

Growth in real estate price market
The Fed raised the federal funds borrowing rate today. It’s the fourth time this year they’ve raised the rate (March .25%, May .50%, June .75%, July .75%) for a total increase of 2.25%. More history: only twice has the Fed lowered the funds rate to 0.00% – 0.25% which is where it was until March’s meeting. The first time was in 2008 to offset the Great Recession and then again this Spring in response to the global health crisis. At the other end of the spectrum, the federal funds rate was 20% in 1980 in an attempt to offset double-digit inflation.

So how will today’s increase impact commercial real estate?

Increasing stock market graph with pen
Per the article below, the most immediate impact will be the widening gap between buyers and sellers pertaining to asset pricing. With the increased cost of capital, buyers will expect downward price adjustments along with lower growth expectations and sellers will maintain their definition of the cycle’s peak pricing levels. Until the disconnect begins to repair, there’s a lull coming in multifamily transactional volume.

Concurrently, new development and larger scale capital improvement initiatives are likely to be on hold for the near term. Also, some landlords may try driving rents as hopeful renter homebuyers have just been dealt a blow relative to their presumed debt burden with a new home purchase. They may be forced to continue to lease.

But landlords be aware. If we’re heading to a recession, many believe we’re already there, layoffs may occur and wages may stagnate, further challenging renters each month. And inflation has already impacted the costs of goods and services landlords are paying to maintain their properties. So maintaining occupancy and rental rates, and being laser-focused on expenses, are critical for the successful multifamily owner/operator.

Svikhart & Associates assists owners in all aspects

We assists owners in all aspects of multifamily asset management from performing rent comparable analyses, expense management critique, valuation reviews, and return-on-investment  analysis. Should an owner be contemplating a property sale, Svikhart & Associates provides full brokerage services in marketing properties to the broadest audience possible.
Please find us at www.svikhart.com or contact me directly at 801-550-5684 to learn about the range of real estate services our firm provides.
Fed Funds Rate Increase – Impact on CRE
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