On the 13th, the Federal Reserve announced that they would continue buying Mortgage-Backed Securities in the amount of $40 BILLION per month. This policy apparently will be in place for some time to come.
This policy directly impacts development, the condo market in NYC, and what’s available to buyers in terms of mortgage rates.
Without going too far into it, low mortgage rates seem to be here to stay.
This will have lots of difficult consequences for those who depend on fixed income and fixed income from investments.
Returns will continue to stagnate.
Real Estate will continue to look attractive, and capitalization rates on multi-family buildings for sale will stay super-low.
In plain English, prices will be very high on sales.
But the upside is also huge.
Buyers can borrow at such low rates.
Mortgage rates should dip to 3.25% soon, another historic low.
In a meeting this past week, I was speaking to a financial construction consultant who is simply astonished that he is able to access capital for developers he works with, very seasoned New York City builders, at 2.5% from government programs, for 35 years.
This is nearly free money- allowing them to map out a plan for a building which leaves much room for mistakes- even if the rental market tanks, they still have nearly zero in borrowing costs.
Lower rates than this, even on jumbo loans
Developers seem to be more than happy to tap into this pool of capital while it’s available, building both rentals and condominium projects.
However, with rental rates being as high as they are, many are opting for rentals, which continues to put pressure on the housing market here, with a current inventory problem.
Many buyers are thrilled to be able to purchase at a time when rates are so low, if they can find a home.
Perhaps it’s not all upside here, really.
Refinancing will continue to pick up, and there will unfortunately be less incentive for owners to sell, if they are simply looking to lower their monthly costs.
Refinancing will accomplish that.
Further, the returns in other investments than Real Estate – as in the stock market- seem more risky at this point than a hard asset.
So we’re back to Real Estate, supply and demand and so on.
If you are a buyer, enjoy these rates, and be prepared for the search to take a little time- given the lack of inventory.
If you are a seller- you could see terrific interest in your property, and ultimately a terrific sales price.