Shifting Strategies: Adapting to “Higher-for-longer” Rates
Federal Reserve Holds Steady, Eyes Future Policy Shifts
- The Fed left the overnight rate unchanged at its January meeting and continues quantitative tightening
- Chairman Powell signaled rates are currently restrictive enough, but also avoided committing to future rate cuts
- Market expectations lean toward no rate cut in March, with higher odds for cuts by mid-year
Investor Sentiment Shifts Toward Action In 2025
- Many investors now expect interest rates to remain near 4.5% this year
- As interest rates stay higher for longer, some investors will reposition capital by selling underperforming assets and targeting higher growth opportunities
- More investors will seek assets with upside potential, focusing on creating value through upgrades, better management or some other strategy
Lending Conditions Show Signs of Stabilizing
- Lenders report ample debt capital availability, with spreads starting to tighten
- Borrowing rates across the property spectrum typically fall in the 6-percent range, leading many investors to still face negative leverage
- Investors appear willing to accept short-term negative leverage if they see a path to long-term value creation
Forecast using Moody’s baseline scenario as of January 2025; estimate for January 2025
Sources: Marcus & Millichap Research Services, Federal Reserve, Moody’s Analytics
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