For months now, all signs have been pointing to an end-of-2017 interest rate hike, so the decision by the Federal Reserve to make the jump from 1.25 percent to 1.5 percent on December 13 did not come as a surprise to economy-watchers. The Fed also did not deviate from its plan to raise interest rates again in 2018. In fact, three increases in 2018 are all but written in stone.
Although some numbers haven’t changed, one figure did: the Fed’s economy growth prediction. After its September meeting, it forecast a 2.1 percent increase. Now that the year has wound down and a clearer picture of 2018 has emerged, the Fed now foresees a 2.5 percent increase.
The recent interest rate boost and the three predicted for 2018 indicate that the Fed has confidence that the US economy is on a positive trajectory. What does this mean for the senior housing market and the commercial real estate industry as a whole? “It means now is a good time to borrow,” says Cambridge Realty Capital Companies’ Chairman Jeffrey Davis, adding, “and so is 2018.”
Interest rate hikes always worry real estate developers and owners who are very protective of their bottom line. For senior facility operators and developers who have been looking at the possibility of borrowing in the next year or so, Davis has this advice: “Get in sooner rather than later, if you can, but don’t lose too much sleep over the proposed rate increases still to come.” Next year’s increases are set to normalize at two percent.
Although outgoing Fed Chair Janet Yellen and President Trump don’t see eye to eye on just how much the GDP will increase in 2018, both agree that growth will occur. It is also expected that the unemployment rate will drop below four percent. If so, it will be the lowest it has been in more than three decades.
This should be welcome news for senior facility operators. “By all means, lock in before the rates change again, but know that a rate increase indicates a thriving economy. A healthy economy may lead to financial gains that offset the costs associated with higher interest rates,” says Davis. The upcoming tax bill, should it be voted into law, may also lead to gains in other areas that will provide relief from any increase in loan payments.
