John Oharenko |
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
The Real Estate Capital Institute®
Chicago,
Illinois USA 60622