CHICAGO, IL, Sept. 2, 2011 – The Real Estate Capital Institute reports the nearly catastrophic stock market dive in the beginning of August triggered chaos in the CMBS world.
The market was severely tested as borrowers and lenders scrambled to close on committed loans. Loans in process without rate locks were typically
repriced 25 to 50 basis points.
Securitized lenders ceased quoting loans until the turmoil subsided and some new loans widened by a full percent (or more) for borrowers needing to close deals within the first part of the month.
The August pricing volatility varied as much as 200 basis points between balance-sheet lenders and the CMBS sources for similar loan opportunities - an unusually wide pricing differential.
Today life companies, agencies and banks hold steady on pricing and flee to quality instead. However, as treasury yields continue to contract, lenders are carefully watching the markets for more pricing clarity.
In many cases, rate floors are introduced to protect yields against too much downward movement in treasuries. All in all, absolute mortgage rates for standard loans remain nearly unchanged throughout the month, albeit spreads over treasuries are wider.
Yet the flight to quality and risk segregation show dramatic pricing differentials above and beyond and any floors.
Competition for low leverage apartment deals in primary markets, for example, dives into 4% for ten-year deals, 3.75% for seven-year deals and
below 3.5% for five-year deals -- all rates are at generational record lows.
Within the mortgage world, numerous factors account for such drastic mortgage rate volatility, but none more than economic uncertainty, both
nationally and globally.
The lack of faith in the economic recovery and domestic budget resolution forces investors onto the sidelines, bringing down treasury pricing to insignificant levels.
The Euro Zone monetary crisis forces even more investors to purchase treasuries. In response, economists have been scaling back their forecasts for the second half of the year.
And now that investors are returning from summer holidays and confronting Hurricane Irene issues, more volatility is expected as various quality of real estate is sorted into the correct pricing levels within
different regions of the county.
Ms. Jeanne Peck (top right photo) of The Real Estate Capital Institute indicates that, "The realty capital markets are on a very bumpy road filled with unexpected twists and turns, as well as deep potholes from troubled deals."
She suggests removing any volatility that an investor can is key, "Drive slowly and watch closely for obstacles will be the most prudent actions for navigating through the remainder of the year."
The Real Estate Capital Institute(r) is a volunteer-based research organization that tracks realty rates data for debt and equity yields.
The Institute posts daily and historical benchmark rates including treasuries,
bank prime and LIBOR.
Contact:
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Research Director
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