If you ask the economist crowd what they think about the Fed's decision to keep interest rates where they are, you'll hear all about trouble in China, the eurozone and a number of other global concerns. But what does it mean for the local developer? Bisnow chatted with LA legend and Rising Realty Partners CEO Nelson Rising (here with Alan Greenspan) to find out.
Bisnow: First off, were you surprised by the decision?
Nelson Rising: No, I was not surprised by the decision. The Humphrey Hawkins Act of 1978, approved by both houses and signed by the president, provides that the FOMC (Fed of Open Markets Committee) should attempt to have monetary policy to achieve maximum sustainable growth consistent with price stability (inflation). With inflation under 2% and oil prices dropping, inflation does not appear to be a concern. Given the fact that GDP projected growth rates for the balance of 2015 have been revised downward for a variety of reasons, we are not yet at the point of maximum sustainable growth. In chairman Yellen’s report to both houses of Congress in July, she made it clear that the decision to raise rates would be on a meeting-to-meeting basis and that if there was going to be an increase, it would be small.
Bisnow: What does a decision like this mean for a developer such as yourself?
Nelson: Real estate markets are very sensitive to the cost of debt financing. Lower interest rates for real estate debt financing are very sensitive to the fed funds rate. In real estate, sellers are able to increase prices because buyers are able to pay more with low-cost debt.
Bisnow: What do you expect to be the immediate impact of the move?
Nelson: I expect it will help us achieve a higher GDP growth rate.
Bisnow: But many postulate this is temporary anyway, with a hike coming in the next month or two. What do you expect next?
Nelson: I believe it’s more likely than not that they will go up slightly in December but there are still a number of uncertainties/concerns about whether we will be at maximum sustainable growth.
