FED INCREASED THE FED FUNDS RATE TODAY
by on December 16, 2015
Federal Reserve Chair Janet Yellen successfully corralled the cats, achieving a unanimous vote by the Federal Open Market Committee (FOMC) to lift the fed funds rate by one quarter point to a range between 0.25% to 0.50%. The unanimous vote came with a compromise. The FOMC reinstated a form of forward guidance, stating that the Federal Reserve will be watching for “actual as well as expected progress toward its inflation goal.” The statement also underscored that future rate hikes will be glacial. The Fed lowered the trajectory for interest rates in 2017 and 2018 slightly, but held to a trajectory of four rate increases in 2016, more than we or the market expected. Note: The Fed has consistently underestimated inflation.
The more interesting issue is how the Fed expects to raise rates; it’s complicated. The levers that the Fed has to use are new and untested in the magnitude that will be necessary to raise rates. Distortions in the yield curve are likely. Traders at the trading desk of the New York Fed will be working to mitigate any distortions that arise, while we enjoy our holidays. Trading to begin raising rates begins tomorrow, so stay tuned. This is another reason for gradualism; financial markets will need time to adjust.
Bottom Line: Seven years to the day after interest rates fell to zero, we are finally leaving that mark. The question is whether we can stay off it. Yellen will do all she can to make sure the Fed doesn’t repeat the mistakes of other central banks. The Yellen Fed will move gradually and wait for overall economic activity show some signs of actual heat before doing anything aggressive on rates. We could use a warmer economy; with any luck, we may get it. Today’s rate hike is affirmation we are at least out of the deep freeze.
MORTGAGE MARKET UPDATE This has been a great year for us at WESTCAP, and 2016 is already positioned to start with a bang. We are currently seeing a lot of life companies focused on closing out the year and gearing up for bigger allocations next year. As in the past, early in the year tends to be the best time to expect more favorable treatment, as underwriting can become more conservative later in the year as allocations start to be achieved. We are also seeing construction lenders becoming more conservative as additional Dodd Frank regulation are added requiring higher reserves of the banks and more conservative underwriting. That said, the FED increase is believed to have been backed in to the market and we expect little increase in the long-term fixed interest rates as a result.
CURRENT COMMERCIAL REAL ESTATE FIXED LIFE COMPANY RATES
5 Year 10 Year 20 Year
Multifamily 3.34%-4.04% 3.69%-$4.39% 4.26%-5.01%
Retail 3.54%-4.24% 3.89%-4.59% 4.47%-5.25%
Office 3.59%-4.29% 3.94%-4.64% 4.51%-5.26%
Industrial 3.44%-4.14% 3.79%-4.49% 4.36%-5.11%
Call for rates on hospitality, self-storage, student and senior housing. Our CMBS sources continue to be very busy with rates running slightly higher than that of our life companies. In addition, we have a long list of relationships with active construction and bridge lenders for all product types. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.
The more interesting issue is how the Fed expects to raise rates; it’s complicated. The levers that the Fed has to use are new and untested in the magnitude that will be necessary to raise rates. Distortions in the yield curve are likely. Traders at the trading desk of the New York Fed will be working to mitigate any distortions that arise, while we enjoy our holidays. Trading to begin raising rates begins tomorrow, so stay tuned. This is another reason for gradualism; financial markets will need time to adjust.
Bottom Line: Seven years to the day after interest rates fell to zero, we are finally leaving that mark. The question is whether we can stay off it. Yellen will do all she can to make sure the Fed doesn’t repeat the mistakes of other central banks. The Yellen Fed will move gradually and wait for overall economic activity show some signs of actual heat before doing anything aggressive on rates. We could use a warmer economy; with any luck, we may get it. Today’s rate hike is affirmation we are at least out of the deep freeze.
MORTGAGE MARKET UPDATE This has been a great year for us at WESTCAP, and 2016 is already positioned to start with a bang. We are currently seeing a lot of life companies focused on closing out the year and gearing up for bigger allocations next year. As in the past, early in the year tends to be the best time to expect more favorable treatment, as underwriting can become more conservative later in the year as allocations start to be achieved. We are also seeing construction lenders becoming more conservative as additional Dodd Frank regulation are added requiring higher reserves of the banks and more conservative underwriting. That said, the FED increase is believed to have been backed in to the market and we expect little increase in the long-term fixed interest rates as a result.
CURRENT COMMERCIAL REAL ESTATE FIXED LIFE COMPANY RATES
5 Year 10 Year 20 Year
Multifamily 3.34%-4.04% 3.69%-$4.39% 4.26%-5.01%
Retail 3.54%-4.24% 3.89%-4.59% 4.47%-5.25%
Office 3.59%-4.29% 3.94%-4.64% 4.51%-5.26%
Industrial 3.44%-4.14% 3.79%-4.49% 4.36%-5.11%
Call for rates on hospitality, self-storage, student and senior housing. Our CMBS sources continue to be very busy with rates running slightly higher than that of our life companies. In addition, we have a long list of relationships with active construction and bridge lenders for all product types. We even have a couple of bank sources which offer no prepayment penalty and a few who offer non-recourse. With a few exceptions our permanent lending sources are PAR to us.
WESTCAP serves as a
correspondent to
15 life insurance companies for, which we service over $1.5 billion, and other sources of capital in order to meet all
of our client's financing needs. Most of these correspondent relationships date
back over 25 years, including Sun Life of Canada for which we have been the
exclusive correspondent in Southern California for almost 30
years. We are handling assignments ranging from $1,000,000 to $400,000,000, and represent all sizes of borrowers including some of the largest developers in Southern California.
WISHING YOU A HAPPY HOLIDAY SEASON
Steve Bridges
Executive Vice President
WESTCAP CORP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
WESTCAP CORP
9960 Irvine Center Drive
Irvine, CA 92618
Office: (949) 387-9061 Cell: (949) 235-1540
www.westcapcorp.com
CA RE Broker: 00465840
CA RE Broker: 00465840
