Fed’s Rate Cuts May Have Not Have Translated to Lower Borrowing Costs for Multifamily Yet
- Jan 30, 2008
By Anuradha Kher, Online News EditorWashington, D.C–The Federal Open Market Committee today lowered its target for the federal funds rate by 50 basis points to 3 percent. This is the second rate cut in just over a week.It followed a three-fourths of a percentage point cut on Jan. 22, a day after financial markets around the world had plummeted on fears that the U.S. economy was heading into a recession. In a brief statement explaining their decision, Federal Reserve chairman Ben Bernanke and his colleagues said: “financial markets remain under considerable stress.”Ernest DesRochers, senior vice president and managing director of NorthMarq Capital, a real estate investment-banking firm tells MHN, “Lower interest rates are good for real estate, especially for residential real estate. But the credit spreads are currently at an all-time high and the rate cuts haven’t yet reflected in lower interest rates. Hopefully that will happen soon and the market can get moving with financing. We hope that the commercial real estate financing will improve.”Ted Patch, senior vice president and chief production officer of Green Park Financial tells MHN, “The market had already anticipated this rate cut, so the effect right now is that treasuries have ticked up but not noticeably. The cut is a sign that interest rates will remain low and we as a Fannie Mae lending company are well positioned to capture the multifamily financial activity.”Patch tells MHN that “in general the cuts are aimed at improving the overall market conditions and that is obviously good for the multifamily industry.”The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.The rate cut marked the fifth time that the Fed has cut the funds rate since it started with a half-point cut on Sept. 18 2007 in response to the severe credit crisis which hit global markets in August 2007.Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks, the statement said.