In March, the Federal Reserve is raising its short-term interest rate for the 3rd time since December 2015 and there is also expectation that there may be two more rate hikes to hit before end of this year.
While analyzing the mere future of the U.S commercial real estate, interest rates are gaining a progressive relevant aspect. Due to the hikes in interest rates, owners are forced to make pay more for borrowing that can have a negative impact on the commercial real estate market.
Rest things being equal, property price will downfall, cap rates will be increasing. A stronger economy is denoted generally by this higher interest rate that tends to be accompanied with a stronger commercial real estate market.
As per the recent surveys made among the business leaders, more expectations regarding the U.S economy along with the rising optimism about the same is prevailing.
Business Roundtable analyzed the economic outlook of more than 100 heads of the U.S companies that are rose during the early of 2017.
They found that such largest companies in the list show the biggest increase since the June 2009. According to the National Federation of Independent Business, they found that those small business entrepreneur’s optimism was about a 43-year high during February.
Yet Janet Yellen, the Federal Reserve Chairwoman states that any predictions of rapid growth of economy may have to be tempered. During a press conference during March, she said that this increasingly interest rates does not indicate a reassessment of the economic outlook.
She also added that the Federal Reserve predicts that the country’s economy to grow at a moderate pace during the next few years.
In the short run, few of the borrowers would prefer to refinance at earliest than doing it later, given that there could be more interest rate hikes are predicted. Recently, the interest rates are increased by a one fourth of a percentage point, to a extent between 0.75% and 1%.
Higher long-term rates are profitable to lenders, still they might not able to enjoy the full benefits out of it due to the rules and regulations enacted post to the 2007 financial crisis, that can assist them to overcome from the excessively risk involved lending practices.
The interest rate hikes we are experiencing now is an unusual juncture as it happens after a span of ten years of low rates very soon as the Whitehouse is pledging to reduce regulations.
One has to wait and watch whether the Trump administration will follow the same through on reducing the financial watchdogs’ reachability, and if so, how much it is possible for the financial institution to succeed by managing the risk accompanied with such reduced oversight.