News & Opinions
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The Interest Rate Surge and Its Impact on Multifamily
Brad Berton / APARTMENT FINANCE TODAY / August 19, 2013
We all knew the ultra-low mortgage rates seen over the last couple years wouldn’t last forever. Still, the recent rise of a full percentage point over a two-month period left even the steeliest of apartment professionals reaching for their Pepto-Bismol.
From early May to early July, the benchmark 10-year Treasury yield, against which lenders quote most fixed-rate loans, shot up more than 100 basis points (bps), from about 1.6 percent to more than 2.7 percent. Meanwhile, lender spreads—the amount a lender adds to the benchmark to produce a final interest rate—have also widened gradually over the course of the year.
The net result: Fixed-rate quotes were up about 100 bps over the span of 60 days, with the popular 10-year terms typically ranging from the high–4 to the mid–5 percent range, depending on leverage levels and other risk factors.
Of course, inquiring multifamily minds want to know: Was the quick uptick just a temporary overreaction to fears the Federal Reserve will soon scale back its rate-busting bond purchases? And if not, what do these higher rates portend for financing activity and property values?
Historic Lows are History
The consensus among veteran finance professionals is that the higher Treasury yields and wider spreads are indeed here to stay, with the benchmark rising gradually in years ahead as the economy continues to recover.
Yes, borrowers can probably kiss those ultra-low Treasury yields goodbye for now, laments veteran mortgage banker Gary Bechtel, chief lending officer with Business Partners, which funds apartment loans on behalf of credit unions.