The Fed and Interest RatesJune 25, 2019
The market is strong. The supply for good investments is low and the the buyer pool is large. This dynamic makes it hard for buyers and great for sellers if they want the highest price for their properties. Some good news for buyers and sellers came out this past week, the Fed met and decided to “maintain” the federal funds rate but left the door open for cuts later this year. In the Federal Reserve Press Release, “The Federal Open Market Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.” Our interest rates shouldn’t rise for the present time but the next scheduled meeting for the Federal Reserve is July 30-31.
With the decision to maintain the current federal funds rate, the question to those reading this post would be, what does this mean for real estate markets? According to Costar, the Fed’s “willingness to consider a change sent a positive signal to the commercial real estate industry.” I agree with Costar as every time our interest rates move up, more pressure is put on sellers to lower the price of their properties. Lately, I am not seeing pricing soften for investments and this recent decision on interest rates should continue to encourage both buyers and sellers alike.
In addition, I’ve noticed that President Trump has commented several times about The Federal Reserve raising rates. I’ve also seen some chatter about this pressure from the President and whether or not the Federal Reserve will be influenced by that pressure. Regardless of whether or not a president can influence the Federal Reserve, I felt the tone of the press release showed us that the Federal Reserve is in fact paying attention to our economy. As Costar noted in their recent press release, “the central bank has now said that it “will act as appropriate” to support the economy, indicating that the policy makers are open to cutting rates in the near future as they continue to monitor increased uncertainties affecting the economic outlook and muted inflation.” So, in other words, they’re paying attention to the economy and open to making the necessary adjustments.
Will all this chatter trickle down to lower rates? Funny you should ask, I also received an email from another colleague on SBA interest rates this past week. The title of the article was, “First Time Ever: SBA 504 Loan Program’s 20-Year Fixed Rate Dips Below 4% for Borrowers, a Milestone Low-Rate in the Program’s 33-Year History.” According to the article, the June effective rate was 3.98% which was just below the prior low of 4.01% which was set in December 2012. A link to this article is both above and at the bottom of this post.
I will close by saying that this is a good time to buy real estate. When the Fed raises rates, it creates a negative feel in the market and a decision to keep rates flat with the hope that rates may be going down later in the year, the environment is positive. I’ve recently heard some investors say that the prices are too high, I have to disagree. If prices are too high, they won’t sell and when prices are low, money is not available so investors can’t buy real estate and nothing will trade. Our current environment gives investors multiple options to borrow money which helps to keep the demand high for good investments.
If you would like an introduction to a bank, help in assembling a strategy for buying or selling a property, or have general questions about buying, selling, or leasing a property, please give me a call at 925-239-1422.