IFOM a.k.a. INTERESTING FACT OF THE MONTH

Protect your pipes from the Winter Vortex!

January is the coldest month in the Northern Hemisphere and the Warmest Month in the Southern Hemisphere.  While there may still remain a debate about the exact latitude of the North Jersey and South Jersey divide - Governor Murphy didn’t make it any easier by declaring “Central Jersey” a “thing” in 2024 (See Map), there is no debating that we are squarely in the eye of a Polar Vortex.  Be sure to keep an eye on your properties and their pipes!

Here are 3 great Solutions to help mitigate the risk of potential frozen pipes risk - for a nominal cost, you could save yourself a lot of headaches and ensure your tenants are not without heat and hot water during a critical time of the year.

1. Stream Labs

2. Leak Defense

3. Flow Logic

4. Simply notify your tenants to open cabinet doors and turn faucets to allow for a slow drip to reduce the risk of frozen pipes (careful with your wording... especially if you pay for water!) 
   *Pro Tip: Solutions 1-3 above are also great in the event of a leak.

Be Well and Stay warm my friends.

INTEREST RATE OUTLOOK 2025

“Higher for Longer”

Now, onto some more newsworthy happenings that impact New Jersey Real Estate.  As we get into the year, we will mix in some more local news, market information, and deal stories, but we wanted to start the year off by taking a look at the BIG picture:

As we enter 2025, and a new-”ish” Administration is set to take up residence in the White House, we’ve been getting a lot of questions about how this will impact interest rates. Over the past year, we have herald a similar refrain countless times - Investors tend to believe that Presidents have an outsized influence on markets and interest rates, So we decided to ask ourselves - “Does the occupant of the Oval Office actually have sway over our cost of capital?”

To answer this question, we zoomed out and used history to provide context. See the Chart below that shows the historical 10-year Treasury Yield (the most impactful benchmark for your borrowing cost as a real estate investor).  We overlaid that historical data with information reflecting the White House Presidential Party for every year going back to JFK.

Additionally, let’s remember that a sitting president does not have the authority to remove/appoint a new FED Chair. And, Chairman Powell has made his intentions about reducing inflation to 2% very clear. He has also been quite pointed about whether he would resign if incumbent President Trump asked him to. Feel free to hear for yourself here, but we’ll save you the time... “No,” said Powell.  

It means that most likely, those holding out hope for the new administration to deliver a return to “free” money are going to be disappointed.  You may have heard the phrase “higher for longer” in recent months - this has become the prevailing outlook for most economists - the “consensus” if you will.  The reality is that the low interest rate environment of 2020 and 2021 is looking more and more like an outlier than the new norm and that “higher for longer” is really just a return to a more normalized historical interest rate environment.  

Even though the Fed started its latest rate cut cycle in September - cutting a total of 100bps since then, the yield on the 10 year treasury has actually gone in the opposite direction.

Key Takeaways:

1. It turns out that there really is NO correlation or causation between Treasury Yield and Party.  

   1. 6 Republicans - 3 left the White House with rates higher than when the entered & 3 left with rates lower than when they entered

   2. 6 Democrats -3 left the White House with rates higher than when the entered & 3 left with rates lower than when they entered

2. Yes, Presidents take and get credit for economic wins that occur during their respective term(s), but the reality is that the Federal Reserve (at least historically 😉) operates independently from the Executive branch

3. More importantly, the Fed pulls the levers that it can, but there are often many more factors that influence rates and markets like investor expectations about economic conditions and growth

4. The yield on the 10 year Treasury will have the most direct impact on your borrowing rate as a real estate investor and these rates will in turn influence cap rates a.k.a. The Value of the cash flow that your property produces = Your properties value.

So, what’s your ACTION plan for 2025 and beyond? Providence Real Estate Advisors offers a full suite of real estate services. SCHEDULE A MEETING with our team to make sure you are best positioned for the next 12 months and years ahead.

FINANCE & ECONOMICS

Markets & Rates

_{*Rates reflected are as of 1/10/2025 and may not reflect real time data at the time of newsletter delivery}

This Week’s Major US Economic Reports & Fed Speakers