February 5th, 2019 4:43 PM by Richard Sardella MLO.100007700/NMLS 233568
Renters are paying more than ever, hitting record levels in 2018
Perhaps it’s because millennials are still trying to handle their student loan debt that they’re not moving out of their apartments, but just about any way you look at it, 2018 was the best year for multifamily real estate this century. According to a recent report in HousingWire, renters paid more for housing than they ever have before.
To top that off, Freddie Mac and Fannie Mae both had banner years and commercial and multifamily debt hit an all-time high, all while delinquencies remained at historic lows. This is pointing to clear evidence that last year was the market’s best year since 2000.
The new report from CBRE shows the following: net absorption hit 286,600 in 2018, the highest level since 2000, topping 2017’s 277,000 total, and marking the highest total this century.
Multi-family construction activity was also high last year, with 267,900 units completed in 2018, slightly lower than the previous year when completions came in at approximately 274,000. That figure notwithstanding, 2017 was a record year itself, with the highest number of completions since the 1980s.
Absorption rates provide information on the leasing rates of a rental market or an individual property over a time period known as the absorption period. They are most telling when compared to the rates from other time periods or other properties. The report for 2018 shows multi-family absorptions were higher than completions for the second year in a row.
Beyond that, multifamily acquisitions were at their highest level in 19 years, up 12.1% from 2017, CBRE’s report stated. Also according to the report, multifamily investment totaled $50.9 billion in the fourth quarter, the highest in any quarter since the fourth quarter of 2015.
As CBRE notes, all this demonstrates a “strong appetite for multifamily assets by investors of all types outweighed concerns over rising interest rates, possible late-cycle exposure and relatively low returns.”
As for vacancy rates, the report shows it at 4.5% in the fourth quarter, down 20 basis points from the same time in 2017. The 2018 fourth quarter vacancy rate was also the lowest, leading to strong investments in 2019.
Source: HousingWire, CBRE, TBWS
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-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: Higher
Mortgage rates are trending higher this morning. Last week the MBS market improved by +47bps. This was enough to improve mortgage rates or fees. There was moderate volatility throughout most of the week.
This Week's Rate Forecast: Higher
Three Things: These are the three areas that have the greatest ability to move the needle on mortgage rates this week: 1) Political, 2) Domestic and 3) Geopolitical
1) Political: We will hear from the two most important figures when it comes to the economy. President Trump will have his State of the Union speech on Tuesday at 9 pm ET and Fed Chair Jerome Powell will speak Wednesday night at 7 pm at a town hall-style meeting in D.C.
2) Domestic: We have a very light week for economic data, but we do get one key report. ISM Services will get a lot of attention. Last Friday's stronger than expected ISM Manufacturing report definitely pushed MBS pricing lower. But that report ONLY covers 1/3 of our economy. The other 2/3 is covered in this Tuesday's ISM Services report.
3) Geopolitical: China markets are shutdown due to the Chinese New Year, so there won't be any economic releases from them (weaker PMI data out of China helped your rates last week). Also, that means that we will not see much movement on the trade negotiations. The markets will continue to be very reactive to Brexit news as well as any progress in the next round of government shutdowns.
Treasury Auctions this Week:
This Week's Potential Volatility: Average
This week we get the ISM Services report. This report has the ability to move rates and increase volatility. The other factor we'll be keeping an eye on are movements in trade talks and other geopolitical events.
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 27 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.