Investors in commercial real estate and multifamily housing should be less concerned about the Federal Funds rate and more focused on the potential scarcity of capital in the debt markets going forward.

Given the consistent 40-year drop-in mortgage interest rates from 18 percent in 1981 to under 3% in 2021, I think we've all forgotten the many potential drivers of these rates. For all the deserved attention on the Federal Funds rate, it seems that many have overlooked an important principle: the Federal Funds rate does not directly impact mortgage rates. Instead, its influence is felt heavily in Treasury bonds, usually 10-year Treasuries, which have historically been a significant determinant of mortgage rates. But not the only one. Factors like GDP, unemployment, housing demand, and inflation also weigh heavily on mortgage rates and often without a direct relationship to the Fed Fund rate or Treasury Bond yields.

Although we all know that modest rate decreases are coming, that may not necessarily lower mortgage rates as much as investors may be expecting.