FEB NIBJ: Barta col: Extend and pretend
Raphael Barta
With the elections now over, that element of uncertainty is resolved, but it remains to be seen how the policies of the incoming administration will affect the economy, and real estate in particular. This apprehension is why Treasury bond pricing is high at 5%, and why the term premium mortgage holders expect is still at a wide spread by historical standards.
The 30-year fixed rate residential mortgage is now 7%. Commercial rates are even higher, ranging up to 10%. The Federal Reserve has been conservative about further interest rate reductions: investors who were relying on significant rate cuts in 2024 were disappointed and that will not change for 2025. “Higher for Longer” is a fact of life going forward. Commercial asset prices have started to decline, and sales have slowed in this environment. Sellers don’t want to take a loss unless they have to, but some sellers are looking at costly re-financing when existing loans come due, or costly upgrades to properties to stay competitive for tenancies.
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