Easing Interest Rates Pave the Way for Real Estate Expansion

Topics: Capital Markets/Commercial Real Estate

As we enter the second half of 2024, the real estate market is poised for a period of opportunity. We believe a key factor contributing to this positive outlook is the recent decline in interest rates. With borrowing costs decreased, we may look forward to an environment that supports expansion and increased property values across various sectors. At the September 18th Federal Reserve’s Open Market Committee Meeting, interest rates were cut to a range of 4.75 percent to 5.00 percent.1

From our perspective, a key advantage of declining interest rates is the opportunity enhanced purchasing power. Lower rates reduce the cost of financing, making it more affordable to acquire properties. This increased access to capital allows for strategic investments and fosters an environment where property values may be able to grow. With the potential for these favorable conditions, we believe the real estate market is likely to experience a surge in activity and value appreciation.

Acquiring assets at favorable prices is another positive aspect of the current real estate landscape. As interest rates decline, property valuations become more appealing, creating opportunities to secure assets that may have been previously out of reach. This environment encourages a long-term approach that benefits from lower acquisition costs and future property value appreciation.

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Based on the chart above, the strong relationship between the 10-year treasury rate and nominal gross domestic product (NGDP), which measures the economic production at current market prices, underscores how declining interest rates can create favorable conditions for real estate growth. As GDP grows, the demand for real estate typically increases, supporting property value appreciation across various sectors.

In summary, we believe the outlook for the real estate market in the second half of 2024 is positive, driven by the decline in interest rates. Decreasing rates can enable enhanced purchasing power and the ability to capitalize on strategic opportunities, creating an environment for growth. As we navigate this promising landscape, the potential for long-term gains in the thriving real estate market is substantial.

For more insights into how these trends impact specific real estate sectors, explore our 2024 Mid-Year Outlook.

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1https://www.cnbc.com/2024/09/18/fed-cuts-rates-september-2024-.html.

2Data retrieved from Federal Reserve Bank of St. Louis; Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Percent, Quarterly, Not Seasonally Adjusted; Gross Domestic Product, Percent Change from Year Ago, Quarterly, Seasonally Adjusted Annual Rate.

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