CHM Blog

Housing Supply Could Come from Converted Office Buildings

With homeowners holding on to their homes due to having a low mortgage rate, the housing market has been severely lacking in supply. Builders have stepped up the pace of building new homes but there is a limit to available land and generally the new homes being built are at the upper end of the pricing range.

One solution to the housing shortage is to convert office buildings into residential units. This method of infill has been a growing trend as millions of square feet of office space sits empty due to the massive shift to work from home.

Since the year 2000, over 50,000 units have been converted and its picking up steam.

Mayors in cities across the U.S. want to loosen rules that can slow the pace of office-to-residential conversions. In some instances, cities have offered generous tax abatements to developers who build new housing.

Cities like Philadelphia have previously embraced these policies to revitalize their downtowns. In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects.

Many experts believe local governments will alter zoning laws and building codes to make these conversions easier over the years.

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are moving sideways today. The MBS market improved by +91 bps last week. This was enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Retail Sales, 2) Manufacturing and 3) G20

1) Retail Sales: The market is expecting a small improvement over the last report but since this measures sales in nominal dollars, we have to analyze how much of an improvement is due to higher prices and how much is due to higher demand.

2) Manufacturing: We get a lot of manufacturing news this week. The manufacturing sector has been contracting for many months, will we see more of the same or a "bottoming" which would set a floor. This week we have Empire Manufacturing, Industrial Production and Capacity Utilization and the Philly Fed Manufacturing Survey.

3) G20: We have the Finance Ministers G20 meeting in India this week, also it includes the Governors from the Central Banks as well. The bond market will be sensitive to comments from that meeting.

This Week's Potential Volatility: Neutral

This morning markets have started under very mild pressure. Volatility should be lower this week with a narrower trading channel.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.