Summer Update: Rates Going Down?

Summer is heating up and the talk amongst real estate investors and market participants is what is happening with rates. In the last 50 days, the 10-year treasury sank to its lowest level in a couple of years and has now hovered in the high 3s. Now, the inverted yield curve may end soon, suggesting that rate cuts may finally soon be here and a potential recession is on its way. But enough with the doom and gloom, consumer mortgage rates are at 18-month lows now and investors are getting off the sideline and back into the market in anticipation of the upcoming rate reduction cycle and a buyer's market.

On the housing side, here is where we are as of August 20, 2024.

• Inventory
  Inventory is starting to increase in major markets across the country while home price appreciation and rental growth are slowing down. As of June 2024, there was a 4.1 months' supply of housing inventory at the current monthly sales pace according to the National Association of Realtors. While six months is generally associated with a balanced housing market, the figure has improved from a low of 1.6 in January 2022.
• Slowing Sales
  Sales of existing homes rose 0.6% month over month in July, but fell 2% year over year—to a seasonally adjusted annual rate of 4,094,991. That's the lowest July level in records dating back to 2012 (source: Redfin). Pending sales—a more current gauge of demand that includes both existing and newly-constructed homes—fell to the lowest level of any month on record except for April 2020, when the COVID pandemic brought the world to a stop. They declined 2.9% from a month earlier and 5.8% from a year earlier—both the biggest declines in nearly a year on a seasonally adjusted basis.
• Days On Market
  Listings are sitting longer on market at 34 days in July, up from 29 days a year earlier, and the longest days on market since summer of 2020. Meanwhile, only 33% of homes sold for more than their asking price, down from 38% a year earlier and the lowest share of any July since 2020.
• Cold Feet
  Roughly 59,000 home-purchase agreements were canceled in July, equal to 15.8% of homes that went under contract that month—the highest percentage of any July on record according to Redfin (data goes back to 2017). Many house hunters are backing out because housing costs and economic uncertainty remain high with recession fears on the rise. Homebuyers in Florida and Texas were most likely to back out of deals. Both states have seen their housing markets slow down considerably, with markets on Florida's West Coast cooling faster than anywhere else in the nation amid rising supply and a climate-fueled insurance crisis.
• Barbell Housing Market
  Twenty of the 50 most populous U.S. metro areas recorded a seasonally adjusted month-over-month drop in home prices in July. That month-over-month decline is up from only four metros earlier this year in February. The biggest decline in July was in Austin, TX (-1.6%), followed by San Francisco (-1.1%) and Nassau County, NY (-0.7%). The highest month-over-month gains were recorded in Indianapolis (1.2%), Miami (1.2%) and San Antonio, TX (1.1%). Home prices continue to push up to all-time highs but at a much slower pace because there is still a supply shortage relative to buyer demand. Mortgage rates have been below 7% since the start of June, but that has not yet translated into a significant increase in buyers, which in turn has prevented prices from rising more quickly.
• Golden Handcuffs
  As of June 2024, nearly 60% of homeowners in the U.S. have interest rates below 4.0% and 89% have rates below 6.0%. With increased housing costs, elevated interest rates, and minimal inventory, it will take time for Fed rate cuts to translate to sub-5% interest rates and increase the transactional activity across the country.

Where will the housing market go from here? It is all but certain the Fed will cut rates starting next month in September. For investors who are anticipating a dramatic drop in rates in the next 12 months, we do not anticipate this drop given the private lending industry's need to claw back net interest income after the last few years. So take advantage of the buyer's market and see how Foundation can get your next deal done!

Loan Scenarios:

• Refinance loans that are coming close to maturity at today's values
• Buy rent-ready homes that have been sitting on MLS with 5/1 ARMs and limited prepays with the intent to jump the buyer's market and refinance later
• Bridge existing homes for sale to lower rate thresholds

Rates are now pricing in the 6s, so we're happy to quote a deal if you want to see both bridge/fix & flip loans or DSCR rental loan scenarios. All we need is:

• Estimated Credit Score
• Loan Request (purchase, cash-out refi, rate/term refi)
• Date of Purchase/Purchase Price
• ARV / Estimated Market Value
• Rent per Unit(s)
• Annual Property Taxes
• Annual Property Insurance
• Annual HOA (if applicable)