Waiting for a Sign About Interest Rates at Jackson Hole

Waiting for a Sign About Interest Rates at Jackson Hole

By Erika Morphy via Globe St

 

WASHINGTON, DC—Construction costs are rising. We know that. What we don’t know is what will happen with interest rates. So before we can answer the question posed yesterday—which is worse, rising rates or rising construction costs?—we need to nail down somewhat a timeline about when rates will start to rise before we can compare that scenario to construction costs that are rapidly becoming downright frightening. A query to the Federal Reserve Bank, we suspect, would be a waste of time. The next best option is to ask people on the ground, grappling with this issue every day as they make decisions about development, acquisition, dispositions and refinancing. So we did.

For the most part, people believe what Janet Yellen, the chair of the Fed, has been saying: later rather than sooner and less rather than more.

Kevin White, director of Acquisitions of Virtus Real Estate Capital, for example, doesn’t believe the Fed is going to raise interest rates this year, “but I do think that at least one rate hike is eminent in 2015 if the economy continues to track similar to its current trajectory,” he tells GlobeSt.com.

Ditto Dean Pappas, a partner in Goodwin’s Real Estate Capital Markets Group. He tells GlobeSt.com that he cannot imagine the Fed raising rates this year “or anytime soon.” “The markets, both real estate and stock, would almost certainly collapse with any significant increase in interest rates,” he says.

Ditto, in fact, just about everyone we queried.

Lawrence Goldstein, senior vice president at NAI Hunneman, a commercial real estate brokerage firm based in Boston notes that the Fed will almost certainly scaling back its monthly purchases of Treasuries, and for the time being that will be it main liquidity play.

“They will not raise interest rates until there is no longer the need for them to buy Treasuries, thus reducing the current stimulus to zero,” Hunneman tells GlobeSt.com. “Once this has been achieved we will see the rate increased slowly within the following six months, that rate will continue to rise as the economy grows, and not a minute sooner. This will be done so that they will not cause upward pressure on incomes, or allow the economy to “overheat” which would be the impetus for inflation.”

 

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