Finally, the Federal Reserve acted on the interest rate hike by bumping the rate upward by a quarter-point.
Long overdue, say most economists. An economy cannot be sustained indefinitely by a zero-based lending system coupled with a massive quantitative easement printing of trillions of dollars. It’s a formula for eventual disasters.
The rate increase is good news for Commercial Real Estate and will unleash some of the pent-up, sidelined investment. Another benefit is derived by CRE lenders who need margin to lend, not to mention that nasty word “profit.”
Janet Yellen, Federal Reserve Chair, stated, “…this action ends an “extraordinary 7 year period during which the Federal funds rate was held near zero.”
There will be no panic in the stock market… adjustments, yes. The rate will begin to impact the cost of money but also the savings return rates for the consumer.
What will occur between now and 2018 is an increase in the cost of products and services… inflation. According to the Federal Reserve, we are likely to see inflation at about 2.00% sometime in 2017.
Commercial real estate values will not be immune to the resulting ripple caused by the rate increase. My belief is there will be a return to a more predictable relationship between appreciation, property value and the cost to purchase and refinance.
My advice is quite simple.
If you have a property to sell, hold for a bit, if possible. If you are contemplating a new CRE investment, flip or exchange and can do it in the first half of 2016, do so. My gut is telling me that over time, we will see jobs, wages and investment values increase in balance with the cost of funds.
Donald Teel is a Principal with Commercial Properties Northern Arizona, an Arizona commercial real estate brokerage and property management firm, headquartered in Prescott, Arizona. Need more information? Please call 1-877-777-9100 or, if you prefer, you may email Donald Teel
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