The Big Interest Rates Question: Can They Go Any Lower?

Jeanne Peck

Chicago, IL - History was made last month with treasuries hitting an all-time low for the past two centuries. Can rates go any lower?

This is the question that everyone seems to be asking. In comparison to this year's previous low, treasuries are about 20 basis points lower for the ten-year term and about 10 basis points lower for the five-year term.  The five and ten-year treasuries continue floating about 100 basis points apart.

Yet if historical mortgage spreads are any indication of the future, mortgage rates may still drop slightly lower, by 20 to 30 basis points - within the "normal" range of 120 to 150 basis points over comparable term treasuries. Given today's rates, the possibility of lower 3% fixed rate debt for 10 year loans is not remote. This type of pricing is so low, substantially narrowing the gap between fixed and floating rate debt.

With such tight mortgage pricing grids, lender differentiation turns from pricing towards other variables including prepayment flexibility, guaranty carve=outs, liquidity covenants and allowance of additional debt as examples. If at all possible, lenders are trying to remain disciplined in underwriting by keeping loan proceeds at conservative levels, although this underwriting variable is also being aggressively stressed.

According to Jeanne Peck, director of the Real Estate Capital Institute, "Mortgage pricing is becoming more negligible as a negotiation variable, given that the actual rates are extremely low."   She adds "Where do we go from here?  Nearly everyone expects rates to rise sometime in the next 18 to 36 months, but mortgage pricing does not reflect such thinking."

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.  Furthermore, call the Real Estate Capital Rate Line at 7RE-CAPITAL (773-227-4825) for hourly rate updates. 

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

The   Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Jeanne Peck,

 Executive Director
director@reci.com

http://www.reci.com