Interest Rates Rise Again

The Federal Reserve announced an interest rate hike by another 25 basis points increasing interest rates from 5.0 to a range between 5.25 and 5.50%, the highest point since 2001.  Chairman Powell says the Fed is concerned about global food security and constrains on the housing supply in part due to homeowners reluctant to move because they have low-interest rate mortgages. 

This expected increase, following last month’s pause, is taking place as the economy continuously cools, with inflation slowing to 3.1% and core inflation (excluding food and energy costs) dropping to 4.8%, the lowest they been since June and September of 2022, respectively. 

Powell’s mission going into the meeting was likely to keep market expectations of another rate rise later this year “priced as a coin flip,” said Daleep Singh, a former executive at the New York Red who is now chief global economist at PGIM Fixed Income. “Pricing the next set of decisions as a coin flip maximizes flexibility for the Fed to react to incoming data.”

In my conversations with lenders, their relationships with borrowers and being creative with their financing outweigh watching a loan go bad.  Additional collateral, higher down payments, and creditworthiness of the tenant(s) all play a role in approving loans. “Lenders will continue to focus on cash flow and debt serviceability, and will remain highly selective, but can be highly competitive for deals they like,” says Henry Vuong, PGIM’s head of Real Estate Investment Research. 

Shelly Branscom, CCIM is an NAI SunVista commercial real estate specialist who provides substantial long-term strategies and business planning services to her clients.  She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients.  Learn more about Shelly and her listings.  

NAI SunVista is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage, and development services.