During 2022 - 2023
1. Capitalization rates remain attractive due to fall in yields for competing investments.
2. Cap rate compression -as interest rates remains below 6.5% fall, the market value of an income property has increased, investors are astonished at the prices that are being offered for their buildings (Property values continue to rise fueled by record low mortgage rates in comparison to prior 2008 recession).
3. Acceleration of wealth creation through real estate 1031 exchange.
4. Dormant Equity.
During 2023 - 2024
1. Loan products carrying high rates to finance Commercial Real Estate transactions.
2. Freddie Mac SBL: 5 or 7 Year Term | 15 Year; Hybrid; Minimum DSCR: 1.50; Non-Recourse.
3. Fannie Mae Loans: 5 or 7 Year Term; Minimum DSCR: 1.55; Non-Recourse.
4. Lenders Respond to the Shifting Funding Landscape.
5. DSCR (Debt-Service Coerage Ratio): NOI/Debt Service must be strong enough to pay off debt.
Fixed Mortgage Rates vs. Treasury Yields
Fixed mortgage rates and Treasury yields tend to move together because fixed-income investors compare the returns they can get on government and mortgage-backed securities.
We encourage Investors to Make the Following Comparisons:
-Yields on short-term Treasuries to Certificate of Deposit (CD) and Money Market Funds.
Note: CD's and Money Market Funds are slightly riskier for investors because they are not guaranteed. In order to compensate for the higher risk, they offer a slightly higher interest rate. But they are still safer than any non-government bond because they are short-term.
-Yields on long-term Treasuries to Mortgage-Backed Securities and Corporate Bonds.
Note: Mortgages offer a higher return for more risk. Investment Investors purchase Securities Backed by the Value of the Home Loans , e.g. Mortgage-Backed Securities. When Treasury yields rise, investors in Mortgage-Backed Securities seek higher rates. These investors want compensation for the greater risk. Furthermore, there are other investors who seek even higher returns and purchase Corporate Bonds. Important to point out that Rating Agencies such as Standard and Poor's grade companies and their bonds on the level of risk. Therefore, these bond prices affect mortgage rates because bonds and mortgages compete for the same low-risk investors who seek a fixed return.
2020
10-year Treasury Yields vs 30 -year Fixed Rate Mortgage
January 2020 1.51 3.51
February 2020 1.13 3.45
March 2020 0.70 3.50
April 2020 0.64 3.23
May 2020 0.65 3.15
June 2020 0.66 3.13
July 2020 0.55 2.99
August 2020 0.72 2.91
September 2020 0.69 2.90
October 2020 0.88 2.81
November 2020 0.84 2.72
December 2020 0.93 2.67
2021
10-year Treasury Yields vs 30 -year Fixed Rate Mortgage
January 2021 1.08 [as of 1/1] 2.73 [as of 1/28]
February 2020 1.26 [as of 2/1] 2.97 [as of 2/25]
March 2020 1.61 [as of 3/1} 3.17 [as of 3//25]
April 2020 1.64 [as of 4/1] 2.98 [as of 4/29]
May 2020 1.62 [as of 5/1] 2.95 [as of 5/27]
June 2020 1.52 [as of 6/1] 3.02 [as of6/24]
July 2020 1.32 [as of 7/1] 2.80 [as of 7/29]
August 2020 1.28 [as of 8/1] 2.97 [as of 8/26]