National CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
Fed’s Latest Rate Hike Adds to Strain on Capital Markets
The latest, and possibly last, of the Federal Reserve’s series of increases to the federal funds rate was widely expected. Yet that doesn’t mean it can be shrugged off, commercial real estate finance experts told Connect CRE.
“It’s clear that Jerome Powell is sticking to his guns on fighting inflation,” said Zachary Streit, founder/managing partner, Way Capital. “One upshot of the hike, in conjunction with regional bank volatility, is that it’s an ever more challenging capital markets environment where it’s getting harder to get deals done every day.”
He added, “There are still quality deals to be done and financing to be had, if you have the structured finance experience and relationships to weather a difficult period. We have been highlighting and incorporating the forward-looking curve which suggests a steep decline in rates later this year and next year.”
Carlos Vaz, CEO of Conti Capital, observed, “While the Fed has softened their language around further rate increases, they are leaving the door open for a continuation of their current rate hiking campaign. Their 10th consecutive rate increase occurs amid continuing difficulties for the banking sector.”
Vaz said the rate hikes “create strain for multifamily real estate because the rate increases press upward on the cost of debt. The multifamily market has already seen a marked slowdown in transaction volume in recent quarters, given how rising debt costs have widened the bid-ask spread. However, the ongoing housing shortage is contributing to sustained apartment demand.”
At the National Association of Realtors, chief economist Lawrence Yun called the rate hike “unnecessary and harmful. Consumer price inflation has been decelerating and will continue this trend. After the awful 9% consumer price inflation in the summer of last year, the latest data shows 5% inflation. It will be even lower as the heavyweight component to inflation, which is housing rent, will inevitably slow down given the 40-year high robust construction of new empty apartment units.”
In addition, Yun pointed out, “there is significant additional monetary policy tightening already occurring. The fast rate hikes by the Fed have upended the balance sheets of many small regional banks. They are becoming zombie-like banks, unable to lend even to good businesses as they are more concerned with balance sheet shuffling for survival.
“This situation will worsen with each additional rate hike by the Federal Reserve. Only by stopping the rate hikes or even a reversal later in the year after verifying much calmer inflation rates will the small banks have a better chance of survival against the big banks.”
- ◦Financing
- ◦Economy
