Unraveling the Impact of 11 Rate Hikes on Real Estate in 2024
The eleven rate hikes this cycle have resulted in the overnight lending rate in a range between 5.25% and 5%. This level is the highest the U.S. has experienced in the last 22 years. The speed and magnitude of these hikes are having a profound impact on commercial real estate. Inflation has been more persistent and entrenched than many economists, and the Federal Government had predicted.
The persistence of inflationary pressures will likely reduce the number of rate cuts that may occur in 2024. Any cuts will likely occur in the latter half of the year. If you are a property owner with debt that is coming due in 2024 and you have been holding out anticipating six rate cuts, you might want to take a more defensive approach and start the refinance process well in advance of your debt’s maturity.
As many properties are now in technical default or have negative equity, borrowers and lenders are extending loans, or seeking ways to avoid having to foreclose or refinance involving a large equity check. These extensions have caused some scarcity in available funds. Loans that should have been retired and the funds redeployed have been extended and those funds are not available.
An additional consideration is insurance. Some markets, most notably California and Florida, are experiencing fewer insurance carriers willing to extend coverage, and the remaining companies are increasing rates and often demand improvements in the properties in order to qualify for coverage. As insurance is always a closing requirement for any loan, it is vital to start shopping and secure insurance before or during the search for new or an extension of existing debt.
illi now has a capital markets division that can help analyze your current debt and help you understand how your current lender or potential new lender will evaluate your property. With a database of nearly 900 lenders, we have the experience and knowledge to help you navigate the debt and equity landscape. If the purchase of a new asset or assets is part of 2024’s business plan, we can help.
Sources:
– Bankrate.com – “Will the Fed Raise Interest Rates One More Time This Year? Some Economists Aren’t Convinced”
(https://www.bankrate.com/banking/federal-reserve/how-much-will-fed-raise-rates-in-2023/)
– Money.com – “Here’s When the Fed Will Cut Interest Rates, According to Experts”
(https://money.com/fed-cut-interest-rates-predictions-2024/)
– Forbes.com – “Mortgage Rates Forecast For 2024: Experts Predict How Much Rates Will Drop”
(https://www.forbes.com/advisor/mortgages/mortgage-interest-rates-forecast/)
SOURCED BY
Richard Stein
Chief Operating Officer
(818) 697-9388
rstein@illicre.com