Saturday, November 4, 2023

Real estate mortgage market rates continue to rise in uncertain environment

John Oharenko


Chicago, IL – Worries about an economic slide accompanied by inflation, the bond markets the 5% mark for 10-year treasuries in late October.   Such rates were not seen since 2007.  


 
John Oharenko, executive director of  the Real Estate Capital Institute's®, suggests, "Flirting with the 5% benchmark treasury shows that the markets are serious about tackling inflation.  The full effects of such yields are yet to be felt by the property markets."

 

 And given the bond markets' punishing yields, the Fed is less likely to raise rates anytime soon.  As expected, the real estate mortgage markets reacted with uncertainty, as witnessed by the following:

 

Multiple Mortgage Rate Increases:   The dramatic volatility in rates forced many lenders to increase rates during the past few weeks.  For example, Freddie Mac's Small Balance rates increased by 40 basis points, spanning three hikes since the end of September.




 

Depressed Housing Markets:  More rent increase pressure puts on more demand for multifamily properties as high rates drove home sales to fall to the lowest levels in more than 13 years.  At the same time, the largest gap between homeownership costs and rental occurred, reaching over a 50% difference.  

 

Mortgage Term Flat Pricing:  Five and ten-year benchmark treasury yields remain nearly identical.  For instance, Fannie Mae Small Loan rates start in the 7.25% range for 5- and 10-year terms.  

 

However, construction and floating-rate lenders offer much wider pricing differentiation due to the limited supply of funding sources that prefer avoiding variable rate risk exposure.  Floating rate deals often are priced over 8%, allowing few new construction ventures to pencil out.

  

The Real Estate Capital Institute® 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 and bank prime.  

 

 Contact:

 

John Oharenko,

 Executive Director

director@reci.com 

 www.reci.com

The   Real Estate Capital Institute®

Chicago, Illinois USA 60622

 

 

 

 

 

 

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