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How Will Fed’s Plan to Shift from Negative Rate Environment Impact Real Estate Valuations?

October 30, 2017Media Mention
ORION Investment Real Estate

At numerous times over the past several years, rising Treasury yields have prompted commercial real estate investors to speculate how the end of historically low interest rates would influence property values. Invariably the yields reversed course — even after the Federal Reserve began in late 2015 to ‘tighten’ monetary policy — and capitalization rate compression continued.

But investors are once again pondering the question amid the Fed’s announcement earlier this month that it would begin to unwind its nearly $4.5 trillion balance sheet this month. The Fed also indicated that it expected a steady rise in federal funds rate in the coming years, including a possible hike of 25 basis points in December that would take the benchmark rate to a range of 1.25% to 1.5%.

The actions are expected to move real interest rates into positive territory, representing a “significant shift” from the negative rate environment that has fueled the recovery, according to Wells Fargo economic commentary issued in September.

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