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Residential Lending
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Home loan rates are solidly in the 6’s, with plenty of news about refinancing home loans.
1) Interest rates: A nice move lower. Why? Last week’s jobs report was less than expected with more weakness in the employment market. Unemployment bumped up to 4.3 %.
10-Yr Treasury vs. Mortgage rates. They do not move in lock-step, yet there is a historical correlation between the two. Typically, Mortgage rates have run 1.5 – 2 % over the 10-Yr. Treasury yield. However, it recently peaked at a 3 % spread, retreating to near 2.6 %. With the potential for Federal Reserve rates cuts next month – lessening of inflation – we might see a double benefit – 10 Yr. T moving lower plus the spread lessening. This could trigger Mortgage rates retracing to low 6’s.
Interesting News: Federal Reserve continues the shift towards talk of interest rate cuts. The world-wide market is not running in lock-step. As noted by the Bank of Japan raising interest rates while Canada and members in the EU cut rates.
2) Residential Real Estate: Overall, business continues brisk. Buyers are actively seeking, but the low inventory of available supply, continues to exacerbate the business. This in turn helps offset the sticky high interest rates. Market leaders and current data, both point to strong price support, with appreciation continuing to hold single digit annual increases.
3) Commercial Real Estate: Financing continues very tight. My take – there is a lot of ‘coming soon’ notes that are being extended to stop. I suspect next year, but time will allow for better insight. My cautious nature sees problems and a need to seek counsel towards the long-term, conservative solutions. As confirmation, lending criteria is biased towards the ultra-conservative, trading off the higher caps rates as one digs deeper into sales, leases and maturities. Such unknowns keep an underwriter and credit manager, spooked.
Good News: A bright spot in the Commercial Real Estate market: The most outer-lying geographic areas are trending pretty good. There, the demand is there – retail traffic, consumer spending – is holding up. Now available supply is moving to a better price point. Location does matter and is fundamental to business success. But it takes time and often with struggles. The steady jobs market – even with a small uptick in unemployment – underpins the market.
4) Jobs: Last week, the Bureau of Labor and Statistics – BLS – reported a definite softening in the jobs market. One more into alignment with street level reality. NOTE: They overstated job creations last year to the tune of 50,000 jobs – per month – on average. With rates for both the U-3 and the U-6, moving up – more than expected – we saw a welcomed drop in mortgage rates. Now the wait to see if Federal Reserve will actually cut rates next month.
Inflation Perspective: Perhaps the key reason for poor consumer sentiment is the lasting impact of inflation – the cumulative rise in prices from 2021. Question: Are wages keeping up? Yes, real wages fell behind in 2021 and 2022, but for the past two years average wages have been gaining on inflation. As a result, on average, real wages are now higher, than pre-pandemic.
CA Fun Facts: 1.8 M less in the labor force, vacancy rates at their lowest, CA poverty rate at lowest levels, and near all-time low levels of unemployment.
Good News:
Even with all the craziness, our successes continue. Why? Our deep pool of lending partners to help find workable solutions. This allows us to work with a sense of certainty when it comes to closing the deal. We get it done because we have the experience and necessary know how!
Side-Light: We are part of an investment group representing high-end properties (on the water, sea-front, lake and more) providing “fractional” investment. We are seeking those who have a property fitting this description, you no longer need – 365 days a year? Or, are you seeking this kind of get-a-way, one you don’t have to support 365 days a year? We have solutions. Call Today.
Side-Light: For investors seeking an ‘easier’ lending path, we have lending options. Benefit: They cover most States, whereby we use only the subject properties income stream to qualify for the loan. Take your good credit and document assets – no tax returns or P&L’s – and purchase 1 – 9 unit properties. Want to know more, let’s talk. Give me a call.
Good News: We have great lending partners. They respect our work and attention to detail. This is good news for you, as they trust our approach and loan packages. In response, we carefully strive to maintain the quality of their depository relationships. This is called team chemistry and is what makes our lending relationship, a winner. Join our team, today
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Enjoy your family and friends this Season. With all the financial talk, the most important part is who we have around us. Be well and be safe!