Mortgage Rate Countdown:

Mortgage rate countdown:  By Julie Taylor

Sep 12, 2024

After years of soaring mortgage rates, relief could finally arrive soon. Market watchers and economists alike believe the Federal Reserve will finally cut rates at its next policy meeting on Sept. 17–18. Indeed, Chair Jerome Powell himself has indicated that rate cuts are likely.

“Cooling employment and inflation both came in near their anticipated levels, solidifying the Fed’s path toward a rate cut in next week’s meeting,” according to Jones.

While the Fed doesn’t set mortgage rates, the two numbers often move in the same direction—and the anticipated rate cut is expected to give the real estate market a much-needed boost.

Homebuyers have long faced affordability headwinds, but “more favorable housing conditions may be ahead,” says Jones.

If the Federal Reserve cuts interest rates as anticipated in the article, it could have significant effects on the commercial real estate (CRE) market. Here's how:

Lower Borrowing Costs: A rate cut would likely lead to lower mortgage rates for commercial real estate loans, making it more affordable for investors and developers to finance new projects. This could spur new developments and acquisitions as financing becomes more attractive.
Increased Property Values: Lower interest rates often lead to higher property values in commercial real estate. This happens because investors can achieve similar returns with lower financing costs, which can increase demand for commercial properties.
Improved NOI (Net Operating Income): For property owners with floating-rate loans or those refinancing existing loans, lower rates can reduce debt service payments, potentially improving cash flow and net operating income. This could make properties more profitable and improve return on investment (ROI).
Boost in Tenant Demand: If the rate cut helps stabilize or improve the broader economy, it could lead to increased demand for commercial spaces, especially in sectors like retail, office, and industrial, which are closely tied to consumer and business confidence.
More Investment Activity: Lower rates typically make real estate a more attractive investment compared to other assets like bonds. This could result in increased interest from institutional investors, REITs, and private equity firms looking for stable returns in the CRE market.
Cap Rates Compression: With lower borrowing costs, cap rates (capitalization rates) could compress further, meaning investors may be willing to accept lower returns for CRE investments, driving up competition for high-quality assets.
In summary, a potential rate cut would likely create a more favorable environment for commercial real estate, increasing both transaction volume and property values, while offering improved financial conditions for both investors and tenants.

https://www.realtor.com/news/real-estate-news/mortgage-rates-plunge-to-6-2-percent-housing-market-week-9-12-24/?cid=eml__1946:66e371a6ac14e93bf60d8e5c:ot_Marketing_Consumer_Daily_Editorial091324&crdl_section=Article%202