Earlier this month we discussed November’s positive jobs report and its potential impact on interest rates. Today we will discuss the Federal Reserve’s most recent Beige Book and its potential impact on interest rates. The Federal Reserve has kept interest rates near historic lows since 2008 to help stimulate the economy, but now economists are expecting it to raise them sometime next year. Senior housing providers and investors should continue to monitor the Fed’s actions because any increase in interest rates will affect property valuations, the cost of capital, and transaction activity in the sector.
Consumer Spending and Employment
The latest Beige Book includes anecdotal information from the Federal Reserve’s twelve Districts for October and November. According to the Book, the economy expanded across the country during the period. Sustained economic growth will increase calls for the Federal Reserve to raise interest rates sooner rather than later. For this reason, the more hawkish members of the Federal Reserve were especially pleased with the Book’s findings because it helps support their argument that interest rates are too low and need to be increased.
Because consumer spending comprises two-thirds of the economy, the hawks at the Fed were also pleased to see that it increased in most Districts during the period. This was partially due to savings from lower gas prices that left consumers with more money to spend on goods and services, and a cold spell in some Districts that encouraged consumers to purchase winter clothing earlier than usual.
Also, echoing the findings from November’s jobs report, the Beige Book reported that employment gains were widespread throughout the Districts with a diverse array of sectors reporting increases in hiring. For example, in Boston, the software and IT sectors reported increased hiring; in New York, financial firms hired more workers; in Atlanta, employment ticked up in the leisure and hospitality industry; and in Cleveland, the manufacturing and construction industries both reported increases in hiring. Furthermore, consumer spending and employment were not the only categories that performed well during the period, as the Beige Book also reported positive activity in the real estate and banking sectors.
Real Estate and Banking
Although there was some variation across the Districts, overall the construction and real estate sectors also expanded during the period. While residential real estate activity was mixed and home prices did not change much in most of the Districts, residential construction increased and office space construction was also strong in large cities, such as Philadelphia and New York. Many Districts also reported increased commercial real estate activity, falling vacancies, and increased rents for office space.
Lastly, in the banking and financial services sector, business lending increased across most loan categories, including commercial mortgages, small business refinance loans, and lending for commercial and industrial projects.
Between the Beige Book and the November jobs report, the data on the economy has been extremely positive as of late. If future economic data is positive as well, it is possible the Federal Reserve could raise interest rates before economists expect them to. Accordingly, senior housing providers and investors who wish to take advantage of today’s low rates before they go up should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for a variety of senior housing transactions.