Despite challenging environment, Brooklyn real estate financing should hold firm
As the U.S. economy continues to strengthen, the Federal Reserve is expected to tighten monetary policy further in 2017, ultimately leading to higher interest rates. While higher borrowing costs could suppress loan origination, commercial real estate financing, particularly in Brooklyn, should hold steady as a host of new lenders and a conducive economic climate keep borrowing activity buoyant.
A robust labor market and firming inflation has the Fed, following years of lackluster growth, confident that the economy is strong enough to withstand the impact of higher rates. This was evident when the Fed’s policy-making arm raised short-term interest rates by a quarter of a percentage point in March, pushing the fed funds target rate up to a range of 0.75 percent to 1 percent. It was the central bank’s second increase in three months and only its third since last decade’s financial crisis.
Interestingly, long-term 10-year Treasury yields have been on a downward trajectory after hitting a two-year high of 2.61% in March. While risk aversion stemming from geopolitical events and concerns about the economy have pushed yields lower, interest rates are expected to head higher. Indeed, minutes from the Fed’s latest meeting showed policymakers discussed the possibility of reducing its massive bond portfolio later this year. This move should put upward pressure on rates and eventually lead to higher borrowing costs on consumer and business loans.