After the 5 Basis Point rate drop, what’s next? Economist says beware of Red Flags ahead for Commercial Real Estate By Hazel Heyer, CCIM -Orlando, Fl
Hazel Heyer - CCIM, SFR, RSPS, NHCB, ABR, ePRO
COMMERCIAL REAL ESTATE AGENT & REALTOR at KELLER WILLIAMS REALTY
At the recently concluded? C5+CCIM (Certified Commercial Investment Member) Global Summit at the Seminole Hard Rock Casino in Fort Lauderdale, Florida, National Association of Realtors or NAR's Chief Economist Dr. Lawrence Yun? said the easing of interest rates reduced ‘financial cost to borrowers’ which is definitely better compared to the last 6 months up to a year ago. Yun says to expect more rate cuts, possibly 6 rate cuts – 2 of which to happen in the next months - as the Federal Reserve attempts to reflect pre-Covid market levels. Watch another possible drop or two as the country heads up to the election.
In efforts to return to 2019 levels, the central bank's fight against inflation, signaling welcome relief?for borrowers, the rate drops may trigger inflation adjustments for the worst. But Yun explained, the Feds said they will keep inflation in check and under control, “Besides, today’s positive inflation is no longer shocking to many as people got used to it somehow. There had been more manageable price increases, but we want to see inflation drop to 2% and as long as it is headed to that 2% level, we will see rates drop even more.” Yun said there were “awful transactions last year and this year that took place, and there will be more of that. But there'll be more job creation in retail across the board, and more job expansions to cushion an impending dip.”
The residential real estate landscape has performed a little better, because of lower supply that kept prices up. It comes with a bittersweet flavor - first-time home buyers cannot buy properties ---which boosted the apartment rental market. “The Multifamily/MF sector has had a very healthy net absorption, this asset is in high demand, so much so that it gave abundant opportunities for leasing and construction. However, so many MF projects are heading for completion, in that there will be an oversupply. California, Atlanta, Nashville, Austin are areas that will soon see vacancy rates rising. See apartment construction starts collapse, because of the high interest rates the developers had to lock in in previous months.”
What’s more, in the next 2-3 years, because of the apartment projects not seeing the light of day, do expect an apartment housing shortage. Rental growth will slow down because of the current interest rates developers signed off on. The shortage will be accelerated. On the same breadth, there will also be a housing shortage on the Single Family home front due to this interest burden on developers.
Adding to this mixed bag of sentimens in trends, the economist says how low the interest rates can go down speaks to the negative headlines addressing government spending ‘on everything’ with relation to tax revenues. “We are looking at $1 Trillion in interest payment alone by the Feds, a number much larger than our defense budget!? And beware of the Red Flags: One is the budget deficit that will further compress cap rates and reduce lending. Second future rents in the next 2-3 years could accelerate a future inflation.”
Total ‘TRUE” job creation/addition or employment generation is getting slower. Office sector may go down (as workers insist on work from home schedules), and the home sector will see a definite shortage years from now, warned the economist speaking against a not-so-rosy backdrop.
?Written by: Hazel Heyer - CCIM, SFR, SRPS, NHCB, e-PRO, ABR
CERTIFIED COMMERCIAL INVESTMENT MEMBER & REALTOR
Cell: 4073018516 ; [email protected]
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