In 2022, few people in the real estate industry gave Jerome Powell their best wishes for the holidays because the Federal Reserve was raising interest rates at practically every meeting.
But it is time for everyone in commercial real estate to “Stop Your Sobbing,” as Chrissie Hynde and The Pretenders sang in their 1979 classic.
It’s time to adapt to the new higher-rate environment and go on as we leap into the unknown of 2023. Banks and title companies were the only groups in commercial real estate that weren’t sobbing as rates increased.
In the final six months of 2022, the banks, who had been sitting on 0% interest rate deposits for many years, could finally earn significantly.
Banks benefited from a windfall when rates rocketed to over 6% while depositor yields stayed close to zero, but this situation isn’t likely to persist in 2023.
The opportunity of generating a fair return on float now exists for title companies, who for many years relied on fees to stay afloat.
That is the money that temporarily and for no cost accumulates in their bank accounts. Title companies had been making nothing on a float for the previous 15 years, but now they frequently make more than 2%.