WHAT is the Federal Reserve?
Have you ever wondered, “where does money come from?”, “who produces it?”, and most importantly, “who the heck controls it?”
The Federal Reserve, or “the Fed,” is the answer to many of these questions and serves several functions, including the regulation and supervision of banks and other financial institutions, influencing credit conditions, and supporting the stability of the US economy. The Fed was created in 1913 by the Federal Reserve Act to serve as the Central Bank of our country.
HOW can the Fed impact the value of my practice real estate?
By manipulating interest rates in the financial system.
HIGHER RATES
Higher interest rates in the market means money is more expensive to borrow. This results in lower valuations for real estate and creates a “buyer’s market.”
LOWER RATES
Lower interests rates in the market means money is cheaper to borrow. This results in higher valuations for real estate and creates a
“seller’s market.”
WHY does the Fed modify interest rates?
The Fed lowers interest rates to stimulate economic growth, as lower financing costs can encourage borrowing and investing. When there is too much growth (inflation), the Fed can then raise interest rates in order to stabilize growth at reasonable levels.
In other words, the Fed has serious power to influence the economy of our country!
WHEN do interest rates change?
The Fed meets a few times a year to take the temperature of our economy. In recent meetings, Federal Reserve officials signaled that they expect to raise interest rates by late 2023, sooner than anticipated, as the economy recovers rapidly from the effects of the pandemic and inflation heats up.
HOW does this impact my Healthcare Real Estate?
Interest rates set by the Federal Reserve impact the entire real estate market, including your practice real estate. This means that as interest rates increase, the market can shift from the currently strong “seller’s market” to a “buyer’s market,” with less attractive pricing.
Not only does this affect the prices that real estate investors and REITs can pay for your property, but also the price that future incoming physicians can pay.
If you are considering selling your practice real estate in the next few years, it may be wise to consider selling while interest rates are at the lowest levels in history – increases on the horizon!
Disclaimer: ERE Healthcare Real Estate Advisors does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.