CDs and Rates

Certificates of Deposit and Interest Rates

7.22.16 | CDs and Rates – Rusty Tweed team

CDs and Rates - Rusty Tweed team

1 Year CD

A one year CD gave you an interest rate of 1.53% 5 years ago. Current interest rates for a one year CD sit at 1.10%.

5 Year CD

A five year CD provided an interest rate of 2.63% 5 years ago. Current interest rates for a five year CD sit at 1.53%.

 Why do CD Rates Change?

 Interest rates can vary due to inflation, supply and demand and the federal funds rate. Rates rise when there is an increase in the demand for credit and fall when there is a decrease in demand. In a similar way, a rise in the supply of credit leads to reduced rates, while a drop increases them.

When inflation is higher, interest rates also rise. Lenders offer higher rates to make up for the falling purchasing power of the dollar.

The Federal Reserve Bank affects interest rates as well. Banks receive more money they can use for lending when the government purchases more U.S. securities, and accordingly lower interest rates. When the government sells securities, interest rates go up. 

How the Fed Affects CD Rates

Last year, Ben Bernanke wrote that the rates set by the central bank follow the economy. This leads to low rates on certificates of deposit.

 “While the Fed doesn’t set market interest rates such as Treasury bond rates and mortgage rates, it influences them through two key interest rates — the Fed discount rate and the federal funds rate,” says Robert Johnson, CFA, president of The American College of Financial Services in Bryn Mawr, Pennsylvania, and co-author of the book “Invest with the Fed.”

“Changes in the discount rate are considered a reliable signal of the Fed’s long-term policy intentions, or stance. Changes in the target fed funds rate are considered a shorter-term gauge of the stringency of Fed policy,” he says.

When the target federal funds rate increases, tighter monetary policy leads to higher rates for borrowing and economic growth is squeezed. As the fed funds rate goes up, so do CD rates.

“CD rates are highly correlated to Fed policy actions, following the fed funds rate extremely closely. Banks peg CD rates off of the federal funds rate,” Johnson says.

Watch the federal funds rate carefully to see if rates increase later this year. In the meantime, you may want to consider keeping your

 CDs and Rates - Rusty Tweed team


 CDs and Rates - Rusty Tweed team

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U.S. is the Developed World’s Growth Market

7.14.2016 | U.S. is the Developed World’s Growth Market – Rusty Tweed Team

Expected U.S. Growth vs. Other World Powers

The U.S. is expected to add more people than all other developed economies across the next 35 years, seeing a growth of 50 million people by 2050. According to a 2014 Pew Research Center Report, the U.S. will likely increase its population more quickly than European and East Asian countries, but more slowly than Nigeria, which is expected to replace the U.S. as the third most populous country in the world. India is expected to surpass China’s growth and top the list by 2050, seeing its population grow to 400 million by 2050 – almost equal to the combined populations of the U.S. and China.

What will the U.S. look like by Mid-century?

U.S. is the Developed World's Growth Market - Rusty Tweed Team

In June’s edition of the AEW Real Estate Market Outlook, the data suggests that over half of the growth in the U.S. over the next 35 years will be derived from immigration. By mid-century, the U.S. will have no majority ethnicity. The first millennials will hit mid-life within the next ten years; meanwhile, the first boomers will reach 80 within the next decade. Pew Research Center predicts that most countries worldwide, including North America, will see the share of its population that is over 65 overtake the share that is younger than 15 by mid-century.

What will the Impact Be on Real Estate?

In its June U.S. Real Estate Market Outlook report, AEW estimated that the U.S. will be in need of over 30 million new housing units by 2050. 1-2 billion square feet of new office space and a similar proportion of new distribution space will also be required by mid-century.

AEW’s Present Day Economic Outlook

The economic outlook for real estate and construction is looking healthy. The U.S. is now heading into its seventh year of continuous growth. New jobs are still being created at around 200,000 per month. Labor shortages in certain industries are likely across the next several years. Construction is set to accelerate.

The AEW also reported that rents have reached a new peak in most markets across the country. The tightening circle has already started, but it looks to be the slowest in Fed history to date. So far, long rates and property yields have been held down by robust capital flows. It looks likely that there will be outsized property gains in 2015, but moderation will follow.

References for U.S. is the Developed World’s Growth Market – Rusty Tweed Team:

AEW Real Estate Market Outlook, June 2016

U.S. Vacancy Rates Decline as Peak Rents Increase

7.13.2016 | U.S. Vacancy Rates Decline – Rusty Tweed team

Lots of fascinating data on the current state and outlook of the U.S. Economy and Property Markets emerged in last month’s Real Estate Market Outlook published by AEW Research.

Office and Industrial Vacancy Rates in the U.S. are Declining at an Accelerating Rate


U.S. Vacancy Rates Decline - Rusty Tweed team

AEW Research’s June report revealed that Industrial units have seen a rapid decline in vacancy rates in recent years, peaking at 14.5% in 2010, then falling steeply to 9% in 2015. Similarly, office vacancy rates have also seen a decline in recent years, moving from 17% in 2010 to 13% last year. According to Reuters, new construction of office space fell to around 6.9 million square feet in the second quarter of 2016, from around 7.7 million square feet in the first.

Retail spaces have comparatively stayed at a more even figure, hitting just over 11% in 2015, down from just 13% in 2010. Apartment vacancy rates remain significantly lower than the other categories, and indeed have been since 1995 to the present, largely staying between 2.5% and 7%. Since 2010, apartment vacancy rates have gently declined to their present U.S. average level of approximately 4.5%.

Rents Now Near or Above Prior Peaks

U.S. Vacancy Rates Decline - Rusty Tweed team

The average apartment rent is currently 20% higher than the pre-crisis peak. The U.S. average rent index was approximately 94 in 2010, rising to 124 by 2016. Office and industrial rents are also now approaching prior peaks. The strongest NOI growth of the cycle is happening now as rents reach new peaks in most markets around the country.

According to the Wall Street Journal, apartment rents increased more quickly last year than at any other time since 2007. Average rents nationwide increased by 4.6% in 2015, the most significant rise since the prior to the recession, according to a report by Reis Inc. The average apartment rent U.S. wide is now $1,180, up from $1,125 in 2015.

Analysts report that the apartment market is showing some early signs of peaking. Vacancy rates in the fourth quarter of 2015 rose slightly from 4.3% to 4.4%. The reason is the increase in new supply, which will most likely impact rents in high-end buildings in downtown areas. In 2015, over 188,000 apartment units were completed in 2015, the highest since 1999, according to Reis.

Bob DeWitt, Chief Executive and President of DeWitt, a Boston firm, “We certainly believe that over the next two or three years rent trends are going to slow and in some places they may actually back up”.

References for U.S. Vacancy Rates Decline – Rusty Tweed team:

AEW Real Estate Market Outlook, June 2016 (

Low Vacancy Rates in LA Creating Housing Shortage

7.11.2016 | Low Vacancy Rates in LA – Rusty Tweed Team

What are the causes of the Housing Shortage in LA?

Blame for the difficulty of finding an apartment in LA and rising rents is often leveled at the new housing developments. New developments are particularly springing up in Downtown LA, Hollywood and Koreatown. Rents climb as new tenants arrive. However, rent has increased citywide, including in areas with extremely limited new development such as Beverly Hills and Venice. The answer, as in other major cities such as Boston, New York and San Francisco, is in fact the low vacancy rate citywide.

According to the LA Times, “the correlation between prices and vacancies [in 20 of the largest U.S. cities] is four times stronger than the correlation between prices and new development”.

Experts agree that a 5% vacancy rate is the tipping point for the power dynamic between landlord and tenant. Above 5%, landlords need to offer lower rents or incentives to be competitive. Lower than 5%, landlords know that there will be a wealth of other takers. Reports from the USC Lusk Center for Real Estate indicate that multifamily vacancies in LA have been below 5% for the last five years.

Los Angeles is the furthest behind in terms of population growth. In 2015, LA’s vacancy rate averaged 3.1%. The city needs new market-rate housing to combat the problem. According to LA Times journalist Shane Phillips, “it must be complemented with policies that more effectively incentivize creation of sufficient affordable housing and additional resources to support lower-income residents.”

Downtown LA’s Multifamily Developments

Over the past 15 years, the total of new multifamily units in Downtown LA (DTLA) has tripled. An additional 22,000 units are either under construction or in the proposal stages.

Low Vacancy Rates in LA - Rusty Tweed Team

The projects under development downtown vary from brand new developments to adaptive reuse buildings. Some of the most hyped new projects include Greenland USA’s $1B Metropolis building, Trammell Crow’s La Plaza Cultura and Trumark Urban’s Ten50 S Grand. ICO Group’s Broadway Lofts is a case study in adaptive reuse following their repositioning of the over 100 year old Bumiller Building.

However, there is still a critical shortage in units and there is  certainly space for more players.

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