Opinion: Where Are Lending Rates Headed In The Near Future?

construction financing financing a project interest rates mortgages multifamily financing real estate financing Nov 11, 2021
The Build-to-Rent Show
Opinion: Where Are Lending Rates Headed In The Near Future?

Topics Discussed:

  • Our thoughts on interest rates and inflation over the next few years.
  • How interest rates for mortgages are tied to treasuries.

Watch the full episode here: https://youtu.be/rQ5CFQ4Gx5E

Where Are Interest Rates Going In The Near Future?

Where do you see rates going? I know that's a big question that people are asking. 

I know on a lot of our projects; we're looking for stuff that probably isn't going to go into long-term financing for about 12 months to 18 months (while they’re being built). So, we usually say to you, on our horizon, what are you seeing? 

As a lender, what direction do you see interest rates going in the near future? What have you been told? 

Lane Aldrich: That's a fun question. 

It's a loaded question too because we're in uncharted territory in the sense. Interest rates historically have, have come down. We're in a low-interest-rate environment and it's been trending down since the eighties, but interest rates for mortgages and properties are tied to treasuries. 

Treasuries are tied to inflation right now is as high as it's been in over 20 years. Yet interest rates and treasuries have detached because the narrative coming from the fed is, “Hey, they, they use the word. They're going to stop using it today. I know the is having a big announcement today. 

They're getting away from this word transmit. Saying, “Hey, all of you are freaking out about inflation to us. It's not real. So, we're going to look past it and they have convinced everyone buying bonds, including themselves, that bonds can be sold at a discount because this inflation that's happening isn't real.  

That's not true anymore. And so, what we might see, what we're keeping an eye on too, is as these bottlenecks continue, and there's upward pressure on prices. Which should also mean inflation do rates catch up to that and interest rates? Honestly, there's upward pressure there. 

Fed's going to wind down their bond-buying program where they're, they're artificially buying rates down. The market's going to have to catch up to what their appetite is. What it really is, but interest rates are headed up. I mean, you can still get the high threes on a 30 year fixed fourplex investment. 

I see that moving into the forest. You could see it just run off for a little bit where it, where it spikes another percent or two for a couple of months. And then the market realizes that it can't stay competitive or keep up with those rates across the board and not just mortgages and they come back. 

But that's a long answer to your question just because there's so much going on right now. And some of it you can gauge off historical data and some of it, you can't, it's just newer. And you're saying what's, this is so detached from what normally happens. What's going to happen here. But the overall trend is. 

Up. But for the long-term, I don't think it's up substantially. So, I still think that the 2-4 unit Fannie Mae Freddie Mac loan product is going to continue to be a great investor go-to for a while.  

Steve Olson: Yeah. The economy is highly addicted to those low rates. Yes. Whenever they start hiking and they taper they call it the taper tantrum. 

Lane Aldrich: Yes. Right. 13 was a real big one that caught everybody off guard.  

Steve Olson: It may just be kind of the new, the new normal, and you gotta wonder, could they even come down at some point, you hear about negative rates in western European countries, right?  

What if you got paid to borrow? 

Sherida Zenger: I'd sign up.

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