Recent Rate Cuts Add Up to Good News for Multifamily Owners

By Anuradha Kher, Online News EditorWashington D.C.–The Federal Reserve, reacting earlier to an international stock sell-off and fears about a possible recession in the U.S., slashed three-quarters of a point (0.75 basis points) off the federal funds rate, which is the interest banks charge each other for short-term loans. The move came surprisingly just ahead of a regularly scheduled meeting of the central bank.The Fed’s policy-making group, known as the Federal Open Market Committee, lowered its target for the federal funds rate, which regulates overnight loans between banks, to 3.5 percent, from 4.25 percent.In its statement, the Fed said, “The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”Fed watchers believe that policymakers will knock an additional point or more off the rate before they’re finished. That would take the funds rate from 5.25 percent, where it was last September, to as low as 2.25 percent.Whether the rate cut would help the economy avoid a recession or not remains to be seen, but for now, the cut is expected to be good news for multifamily renters and owners.“We believe the recent rate cuts will make the Freddie Mac and Fannie Mae rates more attractive in the market,” Timothy L White, president of PNC ARCS, a multifamily lender, tells MHN.“We will see a downward trend in the rates of adjustable rate loan products,” White predicts. “As a result we will see an increase in the demand for the loans and when the interest rates go down, there will be fewer foreclosures and fewer multifamily projects vacant on the market,” he concludes.