If you’re a senior living developer, owner or operator who has been thinking about refinancing or obtaining a new construction loan, now is the time to act, according to Cambridge Realty Capital President and Founder Jeffrey Davis. This is his advice in light of the Federal Reserve’s most recent interest rate hike.
The Fed raised interest rates a quarter percentage point (.25 of 1.00%) in December of 2018. It did so in spite of regular, open public criticism from the President. It also dropped one future rate hike from its plans for 2019, from three to two. Davis thinks these moves will inspire senior living borrowers to “get off the fence” and act on borrowing plans for 2019.
The December rate hike was received with mixed emotions and opinions. Some economists expressed surprise and bewilderment, believing that the increase wasn’t necessary. Others saw it coming, as the Fed had previously forecast a December increase. The announcement that there would likely be one less interest hike in 2019 than previously indicated came as welcome news.
Some Fed watchers’ curiosities were satisfied with the release of the minutes of its December 18-19, 2018 meeting on January 9. The minutes showed that committee members were initially divided on the recommendation of a rate increase, although everyone eventually voted in favor of the measure. “Despite this robust economic backdrop and our expectation for healthy growth, we have seen developments that may signal some softening, “Fed Chair Jerome Powell was quoted as saying at a press conference following the meeting. The minutes expand on the Fed’s rationale behind the December increase as well as the Fed’s plans for 2019.
With the current trajectory indicating that two 2019 rate increases are likely, Davis urges borrowers to do what is necessary to lock in an interest rate in these early months of 2019. Historically speaking, “interest rate hikes do tend to get people moving,” Davis stated, as does the prospect of future hikes. By the end of 2019, Fed fund rates will jump twice, landing at or close to 3%.
Davis reminds borrowers that HUD 232 continues to be a favorable, viable loan product for senior living borrowers with a current rate of 3 to 4%. The exact rate is dependent upon the current US interest rate and will increase with any federal hike. HUD loan rates are fixed for the duration of the loan and have a loan-to-value of 75 to 85%, depending on the type and other factors.
Since changes to the HUD 232 loan program came into effect in 2017, more senior living borrowers that were previously ineligible have been able to qualify for a HUD 232 loan. Davis thinks this will be one more factor that will motivate borrowers to act in the first quarter of 2019.
The next Fed meeting is set for March 19-20, 2019.