Rate Hike Won’t Sink Real Estate Values Says TIAA-CREF Strategist

Real estate investors worried that a December rate hike in the wake of the better-than-expected November jobs report will drag down property values need not be so fearful, said Phil McAndrews, global real estate CIO at TIAA-CREF Financial Services. 'The spread between Treasury rates and capitalization rates, which is a prime determinant of value for real estate is about 300 basis points right now whereas normally it’s around 270 basis points,' said McAndrews. 'So we already have a little room to absorb a rate hike in real estate.' McAndrews added that so-called cap rates are not the only inputs for determining real estate values. He said the improving employment picture is a 'strong indicator' for real estate when it comes to renting out space. Demographics also plays a major factor in the supply/demand equation. McAndrews said millennials are still being weighed down by student loans, which is affecting their entrance into the housing market. That said, when they do seek to buy a home or apartment, they want to be within walking or biking distance, which is forcing gentrification in many neighborhoods.