Through the last quarter of 2018, the Federal Reserve increased interest rates by 25 basis points; pushing it to the highest rates recorded since 2008. The ripple effect of this activity was felt across the real estate industry. Inflation coupled with higher interest rates resulted in a significant decrease in demand. Every investor knows that as interest rates increase, the value of future cash flow decreases, making investing in the housing industry more precarious.
However, a recent report indicates that the Federal Reserve has suspended its plans for further rate hikes. In addition, the Fed revealed that it would maintain its benchmark interest rate within a range of 2.25% and 2.5%, ending the quantitative tightening. While considering the volatile financial markets and strong demand for Treasury notes, the U.S. central bank decided to push the pause button on its steady tightening of the monetary policy.
The Fed’s updated projections and flexible monetary policy have led many pundits to predict a stabilization of rates for this year and possibly next. This reignites various opportunities for real estate investors. Put simply; the loosening of policy offers a great opportunity for investors in commercial real estate, particularly those with a lower propensity for risk.
The change in policy has diminished the risk of volatility in most sectors, but especially in the multifamily market. While the interest rates will probably remain stable for the remainder of the year, it’s the perfect time to invest in multifamily real estate to attain high dividends in the future.
INVESTING IN MULTIFAMILY REAL ESTATE IN 2019
Since the central bank’s policies will support market expectations, it’s time to look for opportunities for profitability. The multifamily housing industry provides a plethora of benefits and opportunities to investors, especially during this period.
STABLE INTEREST RATES
Possibly, one of the most significant factors for investors is updated monetary policy and stable interest rates for 2019. Unlike the predictions made in the last quarter of 2018, the Fed paused the runoff caused by quantitative tightening, allowing investors to create more secure financial decisions. Stability means predictability and security for investments.
MULTIFAMILY HOUSING: DEVELOPING TRENDS
Previously, increasing inflation coupled with slow economic growth drove the Fed to shift their policy outlook. This encouraged a significant number of investors to invest their money in different sectors. With the recent policy changes, these concerns are muted. However, because of earlier supply-side pressures, lending institutions are not as quick to dole out capital. While this may diminish future pipeline in certain markets, it also creates a fairly conservative or comparatively safer investing environment in the multifamily market.
BENEFITS OF INVESTING IN MULTIFAMILY PROPERTIES
The real estate market offers several advantages to investors. From higher returns and a hedge against inflation to stability and diversification of investment portfolios. Investing in commercial real estate (CRE) can fetch great long-term yields. This is particularly true for multifamily real estate. The longitudinal return on rental agreements that gradually turnover compensates for market highs and lows.
The turnover of leases allows investors to benefit from the ebb and flow of rents in accordance with current market rates and market demand for housing. As a result, investors get robust protection while minimizing the risks in economic downturns.
WRAPPING IT UP
According to a recent CBRE report, multifamily investments are predicted to rise in 2019, promising an excellent market balance in the upcoming years. The cyclical and secular trends will remain favorable for real estate, causing strong net absorption in 2020. Furthermore, the updated monetary policy anticipates attracting high levels of investment, with workforce housing and debt capital to remain an appealing strategy for investment.
Considering that, it’s reasonable to say that all the investors out there, who are seeking a profitable investment, should act now. The best move you can make this year is investing in multifamily real estate. Have a conservative position with reasonable expectations, and you will do well with an experienced Sponsor team.