What do falling oil prices, the currency crisis in Russia and Europe’s economic outlook back in 2014 have to do with the challenge of successfully managing senior care properties in America?
“More than you might think,” says Cambridge Realty Capital Companies Chairman Jeffrey A. Davis.
“In our global economy, dramatic headlines heralding significant economic developments at home and abroad routinely reverberate in the U.S. bond market – with an almost immediate impact on borrowing costs,” he noted.
Davis observes that interest rates for popular HUD loans roughly track or parallel yields for 10-year Treasury notes, which swiftly respond to changing perceptions about developing economic trends.
For example, when Russia devalued its currency in 2014 and raised short-term interest rates in the country to 17 percent, headlines announcing this development touched off a major buying spree for U.S. Treasuries. Also, the rapid drop in oil and natural gas prices in 2014 spurred a global buying spree for U.S. Treasury bonds.
“In turn, interest rates nudged higher for senior housing/healthcare borrowers,” Davis said.
In still another example, Davis says when then-Fed Chairman Janet Yellen speculated that rates would begin rising later in 2015, the market response was instantaneous. Interest rates rose dramatically over a 24-hour period.
“We live in a global economy that is impacted by both local and international developments. Our recommendation to owners and operators is to become students of the world economy, as there are many forces impacting their business,” he said.