Have we reached the end of rate hikes? What happened at last week’s Federal Reserve meeting

The big news coming out of last week’s Federal Open Market Committee meeting was the group’s choice to skip another rate hike.

Earlier, the central bank had increased interest rates in every meeting since March 2022 (with a total of 10 rate hikes). The June decision marked the Fed’s first rate cut in more than a year.

irrigated. Chairman Jerome Powell disclosed this in his post-meeting briefing with reporters. They also delve into major real estate topics—including a potential commercial real estate crash and a housing market “down.”

Here are the takeaways:

commercial real estate

Powell & Company is apparently taking “very seriously” a potential crash at CRE — and especially the potential impact it could have on the banking industry.

The problem, he says, comes down to the large portion of commercial property-backed loans held by smaller and more regional banks. If CRE owners default on their loans thanks to reduced demand for office space (vacancies now sit at 13%, according to Costars), banks with huge CRE holdings are bound to feel jealous. In fact, at Signature Bank—which went back in march45% of its loan portfolio was CRE-backed.

If demand for office space continues to weaken, it could lead to more closures of smaller banks around the world. Beyond that area, however, Powell doesn’t expect the CRE downtrend to have a major systemic impact.

“We expect there will be damage,” Powell said. “There will be banks that have a concentration, and those banks will be hit hard.”

Powell says the Fed is closely monitoring the situation and will take CRE performance into account in its future rate decisions. At present, however, it appears that the potential harm is contained.

“It sounds like something that’s going to be around for a while, that will suddenly hit and serve as a systemic risk,” Powell said.

A housing market “down”

Powell also touched on the housing market in his comments, specifically how “interest sensitive” the industry is — and how that could affect the market going forward.

While Fed rate hikes don’t directly affect long-term mortgage rates, they tend to move in a similar direction. According to Freddie Mac, since the Fed began its rate hikes last March, 30-year mortgage rates have risen from 3.89% to 6.7%.

“Activity in the housing sector remains weak, largely reflecting higher mortgage rates,” Powell said. “It’s the first place, really, or one of the first places, that either helps lower rates or lags behind higher rates. And we’ve certainly seen that over the course of the last year.”

he is right. Demand held back due to higher mortgage rates, and both sales and prices continued to fall for months. It seemed that corner turned earlier this year, however, when prices began to climb—albeit only slightly—according to Case-Shiller Index,

Powell says this could be a sign that we’ve been hit — and have already begun to recover — from the market bottom. Will it be a fast recovery though? Probably not, at least not until mortgage rates change.

“Now we see housing going down and maybe going up a little bit,” he said. “I don’t think we’ll see rents and house prices filtering into housing services inflation, and I don’t see them quickly. I see them wandering around lower.

looking ahead

This month’s Fed meeting should not be taken as a sign that the bank is raising rates. While its steps have brought inflation down a bit, we are still not at the 2% level the Fed is seeking. And according to the FOMC’s latest projection material, most FOMC members expect at least two more 25-point rate hikes this year.

The Fed will meet four more times this year: July, September, October and December. CME Group’s FedWatch tool currently has the chance for another rate hike at 74% for the July 25-26 meeting.

Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.