WASHINGTON, DC-Last week Chairman of the Federal Reserve Ben Bernanke told the Joint Economic Committee of Congress that the Fed will not start to sell of the some $2 trillion of securities that that is been accumulating for the past five years to keep the economy on an even keel. Instead, he said, the Fed will likely hold on to them until they mature.
So, for now, a sudden about-face on the Federal Reserve's quantitative easing policy is unlikely to materialize. That doesn't mean, of course, interest rates won't rise in the near to mid term future. One guess making the rounds is that the Federal Reserve will start raising interest rates at the end of 2014, when the US unemployment is predicted to hit 6.5%.
But that's only one guess – and the uncertainty is a growing concern for the commercial real estate community. That, at least, is one of the findings of The Real Estate Roundtable's Q2 2013 Sentiment Survey.
The survey's overall index now stands at 69, which is unchanged from the previous quarter and one point lower than Q2 2012. This score suggests senior commercial real estate executives queried for the survey see trends as favorable--but remain anxious about how a potential rise in interest rates and political uncertainty could worsen market conditions.
"Clearly there is concern over interest rates," Jeff DeBoer, chairman of the Roundtable tells GlobeSt.com.
"There is widespread understanding that interest rates are historically and artificially low and at some point they will rise to market levels. The question and concern that people have is when will interest rates rise and how rapidly they will rise once they do and how will the Federal Reserve monitor the unwinding of the [quantitative easing program] in a manageable way."
No one is anticipating rates will rise will happen any time soon, DeBoer says, "but typically an investor has an exit horizon. Where interest rates will be when an asset is sold or refinanced is a big question."
Here is the kicker, DeBoer concludes: There is debate that real estate values have been driven more by financing and less by fundamentals. '"So the question is, will interest rates stay low enough for fundamentals to catch up."
GlobeSt.com will look at the remainder of the survey's findings in an update to this article.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
