Wednesday, February 3, 2016

Real Estate Capital Institute Reports China’s Mystery Economy Keeping U.S. Mortgage Rates Tame

John Oharenko
Chicago, IL - Declining oil prices, China followed
by Fed statements are the order of news impacting capital markets and
keeping mortgage rates tame.  "Fueling" the fire that sparks low rates,
crude oil prices are the lowest levels since 2003.  China's economy remains
a mystery with limited information on recovery prospects.  This news mixture
leads to some of the most favorable bond rallies in recent history with
ten-year treasuries now dipping below the 2% range. The benchmark 10-year
note yield is actually down by about 40 basis points since the Fed announced
a rate hike at the end of last year.
John Oharenko, advisory board member of the Real Estate Capital Institute(r)
notes, "The mortgage markets are in for another wild ride this year.  A wide
variety of pricing exists between quality and more entrepreneurial real
estate funding options."

Yet again, the real estate borrowing community benefits from ongoing lower
rates. The likelihood of rising interest rates may be shelved for the
foreseeable future as conflicting economic signals hold back the Fed from
taking any further action.

Although benchmark rates are dropping, Wall Street's mortgage conduit market
suffers unpredictable pricing gyrations based upon widening yields within
all spectrums of the capital stack as investment-grade tranches rise more
than three quarters of a percentage point higher from last year's levels.
This funding sector is now quoting mortgage rates approaching 5% or more for
long-term debt.

Agencies, life companies and banks, on the other hand, are on a steadier
path as their sources of capital are more predictable, tending to price 25
to 50 basis points lower that conduit lenders, usually because of upon lower
leverage and more conservative underwriting. 

The bottom line for investors and borrowers alike...lower leverage with cash
flowing deals will continue to attract the most competitive capital.  All
other types of funding opportunities may require additional enhancements,
guarantees, holdbacks and other funding restrictions.  Leverage is becoming
more and more of a "red flag" as capital markets take a break from widening
price gaps and record low capitalization rates on most types of higher
quality properties.

For a complete copy of the company’s news release, please contact:

Jeanne Peck, Executive Director

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