The Federal Reserve cut interest rates 50 basis points Wednesday, marking the first time it has adjusted them downward in more than four years.
The financial markets and industry groups had been anticipating a rate cut of 25 bps, Dan Woodward, managing director of Bethesda, Maryland-based real estate finance and advisory services firm Walker & Dunlop Investment Sales, told Multifamily Dive.
However, some industry observers told Multifamily Dive that they expected a 50 bps cut. “My expectation is that the Federal Reserve will lower the interest rate by 50 basis points,” Nick Sinatra, founder and CEO of Buffalo, New York-based apartment owner Sinatra & Co. Real Estate, told Multifamily Dive yesterday.
The central bank began raising interest rates in March 2022 as it made an effort to tame inflation. A couple of months after the Fed’s move, the apartment sales market began to stall, ultimately leading to seven consecutive quarters of high double-digit declines.
Although Wednesday’s rate cut should boost market sentiment, industry professionals say more reductions are needed before sales return to normal levels.
Long rates are a challenge
Eric Londa, founder and managing partner of Mamaroneck, New York-based apartment owner LRE Management, thinks the central bank’s decision will help the industry going into 2025.
“The slowing economy and bottoming of rents declining and occupancy will also be a catalyst for an increase in sales activity,” Londa said.
But even with the interest rate cut, Londa said longer-term rates remain a challenge. “We do expect the yield curve to steepen from its inversion, which will keep 10-year Treasury in its current range of 3.5% to 4.5% even as the Fed starts cutting rates,” Londa said.
The impact of the rate cut could be muted for multifamily borrowers since the yield curve was already priced into the Fed’s action, according to Bobby Lee, CEO of Los Angeles–based apartment owner JRK Holdings.
Lee said the market had been pricing a 50% chance of a 50 bps rate cut, and the 10-year hadn’t moved as of last week. “Short-term interest rate cuts will not affect property sales, in my opinion, unless they impact the long end of the curve,” he said.
More cuts needed
Like others, Eric Brody, managing partner at New York City-based real estate capital advisory firm ANAX Real Estate Partners, thinks one rate cut won’t have a huge impact on construction or transactions.
“Banks are still hesitant to lend, and financing remains difficult to secure,” Brody said. “While lower rates can help ease borrowing costs slightly, it’s going to take multiple cuts to truly move the needle.”
More interest rate reductions could boost both transaction activity and development, according to Doug Faron, managing partner of West Palm Beach, Florida-based apartment and single-family rental owner Shoreham Capital.
“In the long run, while we don’t foresee a return to the ‘free money’ times of a few years ago, we do believe several cuts will be needed to generate the kind of sustained growth and momentum that the sector requires to return to a bull market,” Faron said.
Ultimately, Brody thinks the upcoming presidential election will provide the market with even more clarity. “The election outcome could drive significant shifts, as policies could influence lending environments and market confidence more than a single rate cut,” Brody said.
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