The Federal Reserve’s third round of quantitative easing – its plan to buy $40 billion of mortgage-backed securities from Fannie Mae and Freddie Mac per month – may push real estate investors out of the residential market and into riskier commercial projects, according to CNBC. During QE2 back in 2010, yields on riskier equities and high-yield bonds, like commercial mortgage-backed securities doubled as the Fed purchased long-term U.S. Treasury bonds.
“If history is a guide, we could expect additional near-term price gains for riskier assets, at least for a few more months,” John O’Callahan of CoStar Group, a commercial real estate information company, said.
However, a major differences between now and 2010 are that commercial real estate prices in solid markets are already stronger than they were during the previous two rounds of quantitative easing and that interest rates are low.
“If QE3 did spur an increase in equity values, investors and companies would be in a stronger financial position, and this could spur a bit of a wealth effect,” according to Ryan Severino, senior economist at Reis, said. And more wealth in the market could lead to business expansion, which would positively affect commercial real estate. [CNBC] – Christopher Cameron