Attempting to Time the Market?

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Waiting for a Rate Cut? (2 min read)

This month the Federal Reserve kept rates steady and said they’re taking a “wait-and-see” approach. They also updated their economic projections: weaker growth around 1.4% GDP, inflation staying near 3.0%, and unemployment at 4.5% by year-end.

Not exactly encouraging news for anyone expecting multiple rate cuts in 2025. Some analysts think the Fed won’t cut rates at all this year. Others predict two cuts totaling 50-75 basis points. Nobody really knows.

Here’s the Better Question: Who Cares?

We need to work within the market conditions as they exist today, not what we’re hoping for six months from now. Ask any investment expert, timing the market doesn’t work. Sometimes it may appear like it does, but that’s just luck.

Cap Rates Aren’t Coming Down Any Time Soon.

Cap Rates have been rising slowly but steadily over the past couple years. There was a long lag between the rapid rise in interest rates and the upward adjustment of Cap Rates. The same phenomenon will happen when (if) interest rates are lowered.

At DealGround we talk to brokers and investors every day. Many are saying Cap Rates will drop as soon as the Fed cuts rates. We disagree.

Brokers telling clients they can get better pricing in the next quarter or two and investors waiting for some magical turnaround are going to learn the hard way why “wait-and-see” is not a great strategy.

A 50-75 basis point rate cut won’t force increased pricing, regardless of how much sellers wish it would. There’s too much inventory and not enough buyer demand. Until that changes, sellers won’t have the leverage to push prices higher, even if borrowing gets less expensive.

Buyers Have Leverage. They’re Not Giving It Up.

Even if rates drop tomorrow, buyers won’t suddenly start paying more. They’ll pocket the spread and maintain their existing pricing expectations. The benefits of an interest rate drop (if any) will completely accrue to buyers for quite some time. If rates dropped slightly would you immediately be willing to pay more?

Too Many Listings. Not Enough Reality.

Want to sell your Starbucks today? You’re competing with 200 other Starbucks properties. The first seller to move on price wins the deal. Each subsequent seller then cuts pricing a little more and on and on. This is the beginning of a death spiral where each subsequent sale at a higher Cap Rate sets the ceiling for everyone else. The process repeats until the inventory is sold - all while Cap Rates rise along the way.

Hoping for rate reductions is not a strategy.

DealGround is the most powerful prospecting engine in commercial real estate. Stop relying on broken, archaic systems. DealGround is the AI powered prospecting solution of the future. Do you want in? 

Be Kind and Win. 

DealGround 

P.S. If you’ve read this far, you should book 15 minutes with our team to see DealGround in action. We’ll show you how our AI-powered prospecting engine helps brokers save time, surface more opportunities and close more deals. Don’t believe it? New users are joining every day and averaging nearly 43 minutes per day on the platform. Schedule time with our team and find out for yourself, now.