Is CRE Poised to Bounce Back Following Fed Rate Cuts?
Last week, the Federal Reserve lowered the benchmark interest rate by another 0.25 percent. It’s too soon to know how the most recent cut might impact the real estate market, but it’s worth remembering that — less than two months ago — many observers thought the Fed’s September cut would jumpstart the housing market.
However, home sales actually dipped (slightly) following the cut while housing prices climbed. Counterintuitive perhaps, but the National Association of REALTORS® (NAR) said it was unsurprising given market conditions.
“There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy,” said NAR Chief Economist Lawrence Yun . He added that the then-looming presidential elections likely contributed to the home buyer wariness.
But it appears that the September cut may have been exactly the jolt the commercial real estate (CRE) market needed to exit its post-pandemic slump, at least according to analysts. JPMorganChase said the September cut could trigger increased liquidity that may ultimately prove beneficial for both commercial real estate and multifamily properties.
When rates rise, JPMC reasoned, cash flow is thin, forcing commercial property lenders to tap into additional reserves against their portfolios. But, when interest rates decline, “cash flow coverage increases, bringing down loan loss reserves for banks. Lower reserves can then be put back into the market and facilitate more deal flow.”
This could translate into attractive refinancing opportunities, JPMC said in September.
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About Susan Lindeque
Susan is a visionary entrepreneur, futurist, and thought leader with over 35 years of experience in business, finance, investments, real estate, wealth creation, and technologies.
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