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| Jeanne Peck |
Chicago, IL
April 1, 2014 -- The US stock market is basking in record-high territory with a challenging task of grasping attractive yields.
As for bond
and mortgage investors, they must choose a blended approach matching inflation protection compared to slower economic growth.
The ongoing glut of real estate capital forces lenders to accept lower spreads, while trying to maintain underwriting discipline. These factors translate to the continued tightening of mortgage spreads over treasuries and borrowers
are the real winners under such conditions.
To better understand the extremely favorable mortgage market conditions for
borrowers, trends reflecting treasury pricing say it all as follows:
* Treasuries are gradually climbing upward with 5-year treasury notes yields peaked at their highest levels not seen since the summer of 2011,
while 10-year notes stay in excess of the two-percent mark since last May.
are the real winners under such conditions.
To better understand the extremely favorable mortgage market conditions for
borrowers, trends reflecting treasury pricing say it all as follows:
* Treasuries are gradually climbing upward with 5-year treasury notes yields peaked at their highest levels not seen since the summer of 2011,
while 10-year notes stay in excess of the two-percent mark since last May.
* Funding sources are moving up the risk curve mainly by offering more leverage. Thus, the focus within the industry is on treasury movements. Should treasuries stay within a predictable range, more forward-delivery and other creative longer-term fixed-rate products will re-emerge.
* Mortgage spreads as compared to different property types reflect less than a 10 basis point difference between multifamily and conventional commercial property types, the tightest range in recent years as funding sources see less difference in property type risks with improving
fundamentals in supply versus demand for space.
fundamentals in supply versus demand for space.
* With the threat of higher interest rates looming, permanent lenders are liberalizing prepayment privileges for longer-term debt, hoping to remove the burden of lower yielding debt in the future.
* With banks, conduits, life companies and other private/public debt funds crowding the marketplace, less pricing differentiation is noticeable, particularly for conservative, lower leverage loans.
* Even between various grades of real estate properties (e.g.,
Class-A vs. B and C), pricing differentials are quite favorable, often quoted within a 50 to 100 basis-point-range.
"The overall economy continues improving with real estate fundamentals enjoying the benefits", says Jeanne Peck, a director of the Real Estate Capital Institute. "Markets are carefully watching Treasuries, particularly short- and medium-term maturities - those most commonly linked to commercial real estate debt. Investors may be underestimating how fast the Fed can
raise rates."
"The overall economy continues improving with real estate fundamentals enjoying the benefits", says Jeanne Peck, a director of the Real Estate Capital Institute. "Markets are carefully watching Treasuries, particularly short- and medium-term maturities - those most commonly linked to commercial real estate debt. Investors may be underestimating how fast the Fed can
raise rates."
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 RateLine at 7RE-CAPITAL (773-227-4825) for daily rate updates.
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Contact: Jeanne Peck, Executive Director
www.reci.com
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