Browse Tag: fed funds rate

Economic Issues In Commercial Real Estate with Lawrence Yun

Photo of slide from Lawrence Yun's presentation

NAR Chief Economist Lawrence Yun addressed the NAR Expo 2014 with a talk on the specific of commercial real estate. Before a crowd of attendees and international translators sending the talk around the world, Lawrence spelled out his projections for 2015 and a bit beyond in areas of indication for the commercial property market.

2.5 Million Jobs Predicted

With unemployment dipping below 6%, Yun did announce that “jobs are coming around,” which would be news to most of the US electorate, having handed a shellacking to in-power Democrats over the matter of the economy earlier in the week. Nonetheless, on the matter of job growth, Yun predicted 2.5 million new jobs to appear in 2015.

“More jobs means more demand for office spaces, more demand for warehouse spaces, more demand for  rental housing and retail spaces.  With the economy expanding, commercial activity should be rising.”

Household Net Worth

The chart Dr. Yun put up showing record high household net worth was explained as being sourced “from the stock market.” Because “there’s no other place to put your money,” he explained, comparing poor or zero returns as compared to bank deposits or other places to stash cash. Driving the stock market according to Yun is the past six years of zero interest rate policy at the Federal Reserve, which led to another prediction for 2015 that wasn’t as rosy.

Raising Fed Funds Rates In 2015?  Spring, Says Yun

“The federal Reserve has indicated that they will be raising the [interest] rate, and this is a big deal for commercial practitioners.  Why?   Cap rates are dependent upon interest rates and if the Federal Reserve raises the Fed funds rate, the only wa to get a higher cap rate is to raise the rents or the price of the property needs to come down.”

Property owners should be “not overly concerned” said Yun, but should be monitoring what will happen to prices [as] a chain reaction to rising interest rates.”

To obtain a full recording of Dr. Yun’s session at NAR Expo 2014, click here to PlaybackNAR.