May 2024 Financing insight
The commercial real estate interest rate trajectory continues to be uncertain, largely influenced by a sticky inflation rate and cautious signals from the Federal Reserve. Despite earlier predictions of six interest rate cuts for 2024, the Fed's approach continues to be "data-dependent," requiring specific metrics to justify cuts. The stubbornness of inflation Continues to hinder rate rates. The resilience of the economy and the expectation of a rate cut may be falsely inflating optimism in the market.
Chair Jerome Powell has indicated that the conditions for rate cuts may take longer to materialize than anticipated, citing robust labor markets and steady inflation levels. San Francisco Fed President Mary Daly has cautioned against hasty actions, suggesting that current restrictive policies should be given time to yield results. Atlanta Fed President Rafael Bostic has underscored the need to remain open to further rate hikes if inflation remains stagnant, although he does not foresee this scenario.
Despite some cooling in the labor market, robust job growth and retail spending, along with an unexpected increase in March's inflation, suggest rate cuts might be premature. The Fed CME tool reflects this uncertainty based on the potential for rate cuts in December. The tool shows a 15.3% chance that the Fed target rate will remain between 525 and 550 basis points, a 35.7% chance between 500 and 525 basis points, and a 32% chance it will drop to 475 and 500 basis points. Furthermore, the 10-year treasury rate has increased by 30 basis points, from 4.29% to 4.62%, impacting the quoted rates in the commercial real estate sector Overall, the evolving outlook suggests a delay in the anticipated interest rate cuts, with a more cautious approach from the Federal Reserve as it assesses ongoing economic trends.
How does this affect you? Interest rates Are increasing slightly because of Increases In Treasury rates. Plan for interest rates to be higher for longer with The understanding that even if rates adjust down they will not get back to historical lows. Multi-family continues to lead the way, Getting the best rates, with industrial and retail following close behind. Owner-user Financing also continues to be extremely strong. Capital deployment by lenders is constantly changing so comparing multiple quotes will be your best bet for getting the best deal.
