From a small northwestern observatory…

There is plenty of news about the FED bumping rates today — a whopping 0.25% (“yawn”) and only the 2nd time in a decade.  The argument is that the FED no longer sees low rates as a needed crutch for the economy.  Perhaps they’re right.  My interest is real estate — how will higher rates impact property returns?  More to the point, if the Trump administration goes ahead with infrastructure spending, as was promised, and the FED follows with further rate bumps, as has been projected, will real estate continue its upward climb?

Rather than answer that directly, there’s a great piece on that topic from TIAA — you can access it by clicking here.  Looking at data from back to 1980, TIAA finds that real estate appears to perform just as well during periods of rising rates as it does in other times.  Indeed, they find a 70% correlation between acquisition cap rates and long-term Treasury rates, suggesting that real estate buyers are agnostic on rates, within reason. Indeed, as the graphic above indicates, the most upsetting quarterly property returns came during periods of relatively stable, downward trending long-bond rates.  For the last half-decade, quarterly property returns have tracked the long-bond quite nicely.

So there ya have it, folks.