As part of the Federal Reserve’s wide scope of responsibility and oversight, the eight regional branches are tasked with monitoring residential and commercial real estate markets; tracking trends and data in order to more accurately adjust to market fluctuations affecting the economy. These studies provide hard data for the Fed to make economic adjustments, but they can also be a great gauge for real estate investors. Any successful investor will tell you that the ability to forecast changes in the real estate cycle is vital. As much as knowing your market and asset class, an awareness of other economic factors is important for mitigating investment risk.
The Federal Reserve Bank of Atlanta serves as the central bank’s regional authority for the southeast. It tracks real estate markets for the region, including Florida and offers comparisons on a national scale. Our guest this week is a commercial real estate expert with the Fed’s Atlanta branch.
Brian Bailey is a Senior Technical Expert in the Supervision and Regulation Division of the Federal Reserve Bank of Atlanta. Specializing in commercial real estate, Brian tracks and analyzes emerging trends in the southeastern region and provides thought leadership on commercial real estate and guidance for the central bank.
Brian brings a diverse background in commercial real estate finance and acquisitions to the Fed. He has over 15 years of experience in commercial real estate finance, having managed financing for millions of square feet in real estate holdings for several large-scale equity and development firms. Brian received an MBA with concentrations in Real Estate and Finance from the University of Florida and has earned a CCIM designation.
You won’t want to miss this commercial real estate outlook on Florida!
Winter is coming… And so are national interest rate increases.
The Federal Reserve has recently announced a new national interest rate hike, the first since 2006. Real estate investors are very anxious about the announced rate hike. Many investors are wary that the rate hike may be instituted prematurely in an economy that is not capable of facilitating the effects on real estate markets.
Mark Fleming, Ph. D. serves as the Chief Economist for First American Financial Corporation. With over 20 years’ experience in mortgage and property information, Mark analyzes and forecasts national mortgage and real estate markets. This episode, Mark lends his expertise to our discussion on the new rate hike‘s effect on current real estate markets at a national level, and tells us why investors shouldn’t be so worried.
Federal Reserve Rate Hikes
First rate hike in 9 yrs
2006 – +5% increase
2007 -’08 to Present – 0%
End of Year (2015) – .25% increase
2016 – +1% increase
Instituted to correlate with expected income/wage growth
Long-term, fixed-rate loans not affected
Good for housing markets
House-price appreciation seeing “asset inflation”, especially in Florida
5-6% nationally, higher in FL markets (South Florida)
Out-pacing current wage growth, causing increase in housing rates
Rate hike should slow appreciation growth rate
2016 and Beyond
Rate hike est. 5% increase
House-appreciation (Nationally) projected to slow to 3-4%
Income growth est. 3-4% increase
Commercial real estate to benefit from economic growth
Multi-family to benefit from strong millennial rental market
The Federal Reserve is institution many are aware of. As the central bank of the United States, it serves as the standard for banking as well as regulates and moderates national interest rates. What many don’t know is that the Federal Reserve also has many other responsibilities.
Carl D. Hudson, Ph.D. is the Director of the Center for Real Estate Analytics at the Federal Reserve Bank Atlanta. The Atlanta division of the Fed (1 of 12) oversees much of the Southeast U.S., including Florida. Dr. Hudson is responsible for identifying and analyzing systemic impacts in real estate, economy, financial institutions and consumers. This week he shares his insights on the post-recession rates of Florida’s real estate market and its relation to the rest of the nation.
Florida is real estate market economy
Immigration major factor in FL real estate market
2000-2007 – >300k/ year in population growth
2008-2009 – <100k/ year
Economy is improving slowly
FL employment growth rates – 3.4% annually, highest in Southeast U.S.
Only .2% growth from pre-recession peak
Interest Rates may see increase over time
Short-term rate increases likely
Indicative of returning economy
No dramatic increases
Multi-Family markets in FL
40% year-after-year construction growth rates
Major Markets: Tampa, Ft. Lauderdale, Miami, Jacksonville, Orlando seeing positive trends in construction
Largely driven by foreign market
July 2012: 4200 units under construction; June 2015 20,000 units under construction
Strengthening of U.S. dollar may inhibit foreign investment
Lower rates than pre-recession, but functioning at rates equivalent to early 2000s
Changes to investing
Prior to recession – financing investment involved a deposit
Post-recession – “pay as you go” financing on the rise
Greater commitment to investment, not easy to walk away
Growth trends for Florida?
Panama Canal reopening could mean major impacts on East Coast port cities
In FL – Jacksonville, Tampa, Miami, Ft. Lauderdale
To find out more from Dr. Hudson’s department, visit The Federal Reserve Bank of Atlanta’swebsite and click the Center for Real Estate Analyticslink
Click here to read the President of the Atlanta Federal Reserve, Dennis Lockhart‘s speech on the national economy