Federal Reserve concerned about CRE overheating

On Behalf of | Feb 6, 2017 | Firm News |

Luxury apartment buildings are springing up in California cities like Los Angeles, San Diego and San Francisco, and this has some real estate experts worried. Historically low interest rates have led to a flood of development, and selling high-priced apartments is likely to be difficult in some areas. The demand for vacant commercial space has fallen sharply in recent months in major markets like New York, and a glut of multi-family units across the country has stoked worries of a much-feared market correction.

These fears are strong because memories of the 2008 financial crisis are still fresh, and Federal Reserve Chair Janet Yellen warned about economic bubbles in a September interview. The nation’s central bank raised interest rates in December by a quarter point to calm the lending markets and keep inflation under control, but the loosening of underwriting standards by banks in search of higher yields is seen as a serious threat to the stability of the commercial real estate market.

The credit rating agency Fitch Ratings have added to the sense of impending doom by predicting that the delinquency rate for commercial mortgages will rise to 5.75 percent in 2017. Introducing tougher lending rules rather than relying on monetary policy intervention is the best way to stabilize the market according to Yellen, but this view has also sparked concerns due to President Trump’s position on government regulations and red tape.

Unexpected downturns in the real estate market can make life very difficult for commercial property developers, and completing major projects on time may be the best way for them to avoid being left in this unfortunate position. Experienced real estate attorneys could help developers to remain on schedule by dealing with legal issues and disputes quickly and effectively and avoiding costly delays.

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