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| John Oharenko |
Chicago, IL, Jan. 1,
2019 – As the year begins, high volatility and uncertainty are buzzwords for
real estate capital markets.
The Fed’s interest rate hike in December was the fourth of
the year, and the ninth upward adjustment since 2015.
Ironically, five and
ten-year benchmark treasuries are about the same as the end of last January,
but short-term indices -- mainly Prime -- are about a full percent
higher.
However, the most significant news focuses on continuously
plummeting rates as witnessed last month, a movement of about 30 basis points
downward for benchmark treasuries.
These movements reflect extreme
uncertainly in the stock market, assuring that mortgage rates will be under pressure
to remain at currently low levels for the near future.
Lenders maintain strict underwriting standards, as
regulators actively monitor the banking sector, the agencies and other
traditional financial institutions.
Unregulated debt funds dominate higher risk/leverage
offerings, but also must target competitive yields in an oversupplied capital
environment.
In summary, the overall debt community will predictably
perform within tight yield expectations, rather than taking on higher risk
ventures.
For now, expectations of permanent rate stability help
sellers maintain favorable pricing levels in the realty equity markets.
Buyers, on the other hand, are increasingly more cautious and selective –
especially in the luxury multifamily property sector, as new supply floods
markets.
Some other quick predictions for 2019:
Suburbia Rebounds: Watch as more suburban
acquisitions make headlines. With urban core markets gaining the most
attention, suburban properties in nearly all sectors (except industrial) enjoy
renewed buyer interest due to larger pricing gaps.
Price Discovery: This year will feature more
pricing “discovery” than in the recent past, since more buyers are fleeing to
attractively-priced stocks and bonds. Naturally, less buyers at the table
means lower prices.
Higher Rates: As the cost of borrowing
rises, markets will re-price assets accordingly and gradually. The
domestic economy is on a steady course. So don’t expect any dramatic
changes, unless global events significantly alter market stability.
John Oharenko, director of The Real Estate Capital
Institute®, emphasizes, “2019 is starting with a loud bang as short and
long-term rates continue converging, the classic signs of a market
correction. That said, it doesn’t feel like it will be painful as the
economy keeps humming along and real estate fundamentals are generally solid.”
Contact:
John Oharenko
The
Real Estate Capital Institute®
3517
West Arthington Street
Chicago, Illinois
USA 60624
Contact:
John Oharenko, Executive Director
The Real Estate Capital Institute® is a volunteer-based
research organization that tracks realty rates data for debt and equity yields.
The Institute posts historical benchmark and mortgage rates including
treasuries, bank prime and LIBOR.
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