Latest Fed Rate Cut Will Have No Impact on Apartment Sales Volume, Say Market Participants

By Anuradha Kher, Online News EditorNew York–The Federal Reserve yesterday cut its target for the Federal Funds Rate—the rate at which banks lend to each other—from 1.5 percent to 1 percent, the lowest level since June 25, 2003 when the U.S. economy was grappling with the aftermath of the dot-com bubble. But this latest rate…

By Anuradha Kher, Online News EditorNew York–The Federal Reserve yesterday cut its target for the Federal Funds Rate—the rate at which banks lend to each other—from 1.5 percent to 1 percent, the lowest level since June 25, 2003 when the U.S. economy was grappling with the aftermath of the dot-com bubble. But this latest rate cut, which aims to stabilize the financial markets, is not expected to have any impact on multifamily financing or the apartment sales market.“While the Federal funds rate cut has been welcomed by financial markets worldwide, it will not turn slowing apartment sales around and speed them up,” Jim Scofield, senior investment advisor at Sperry Van Ness, tells MHN. “This is because many other factors are causing the slowdown in apartment sales.”“However, the rate will impact the U.S. economy over time, and thus indirectly the multifamily investment business as its impact ripples through. But ultimately, the velocity of apartment sales and pricing are directly related to NOI, investor return expectations and the availability and cost of credit. Today, NOI growth is slowing, investor return expectations are rising, and credit is more difficult to obtain and more expensive. This is why apartment sales are slowing and prices are declining,” says Scofield.Jeffrey W. Baker, executive managing director of Savills LLC echoes Scofield’s opinion. “I do not see any near-term impact for apartment sales. Underlying fundamentals (meaning rents, occupancy, values) are weakening and many investors remain on the sidelines waiting for the markets to settle before proceeding. As a result, transaction volumes across all sectors are down dramatically and are likely to remain depressed until there is evidence that market conditions have stabilized,” he says. Baker hopes that the longer-term impact of rate cuts and other stimulus packages will soften the recession and get our economy back on track, creating jobs and increasing consumer demand. Alex J. Katz, managing director of Meridian Capital Group, says that financing rates, however will be impacted. He tells MHN, “Existing loans based on prime or even LIBOR will see a near-term benefit due to this rate cut.”Katz is also convinced there won’t be an immediate positive or negative impact on apartment sales volume or financing for multifamily. “In the medium- to long-term, there will be a positive effect. For now, stabilized apartment deals are already getting a good rate,” he says.

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