The Azucena Take: Actions of the Federal Reserve and Investment Real Estate
Since mid-2022, the Federal Reserve has taken a more hawkish approach to curb inflation. This has been met with a mixed response as some feel it should have been done sooner to those who are sounding the alarm about a possible economic crash.
With the latest announcement of rate hikes, there are now concerns about a recession. Thus it helps to see how this will all impact the investment real estate market.
The Current State of the Economy
First, let's get the obvious out of the way (since too many grifters and idiots promote misinformation). This is a global issue brought on by the pandemic and is ongoing due to a number of factors. No one factor is single handily responsible for the inflation crisis.
The Federal Reserve of the United States is also not the only central bank raising interest rates. Most of the central banks in major economic hubs have been doing so since late 2021. The Bank of England and Banque de France last raised interest rates in late September. Meanwhile; the Bank of Korea announced a new hike while the Bank of Canada confirmed more hikes will come.
Finally; we come to the fears of a recession. Will there be one? The best answer is maybe - because it's hard to tell. When KPMG surveyed 400 CEOs, 95% expected to see growth in the next three years. However, 91% expect some kind of recession in the next 12 months. While CEO confidence is at 84.2% and dropping, confidence among small business owners is at 91.8% and climbing.
The problem overall comes down to many associating what is a normal recession with what happened during the 2008 Crash.
How the Feds Actions Impact Real Estate
So time for the obvious, how will the actions of the Federal Reserve impact the investment real estate market? It depends on the property type.
One of the immediate impacts will be on industrial and retail properties. That is because rising interest rates and a drop in confidence could result in a hiring slowdown. This could result in a reduction in inventory and a drop in sales. Thus the demand for such property types will decline for a short time.
Apartments and self-storage should see a solid performance during the same time frame. People will need a place to live and with the housing shortage along with high-interest rates, renting would be the best option. Self-storage will see a boom as people will need a place for storage on a temporary basis.
For investors, they will need to rethink their growth strategy going forward. Capital will not be easy to come by like in 2021 and they can't just sell off an asset at a high price. Thus one will need to examine their markets and see what is the best course of action.
What it Means for Investors?
The big takeaway for investors should be that the actions of the Federal Reserve do affect real estate. Those effects depend on the property type and what one's role is in the market. That is why now more than ever it's important to work with an expert who understands your market.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap