Speculation has been rampant over the past several months about how high the Federal Reserve will push interest rates in an effort to curb inflation. And while interest rates continue to be pushed higher, mortgage rates have lately fallen slightly, raising the number of mortgage applications in recent weeks.
The recent drop in mortgage rates—however slight—has been a welcome change of pace in the mortgage industry. This is especially true after home-buying activity fell precipitously following the Fed rate hikes earlier this year. The question now remains how much higher interbank lending rates can go, to what degree mortgage rates will follow suit, and how home-buyers will respond.
Because mortgage rates are more closely tied to 10-year Treasury rates—as opposed to interbank lending rates—further increases in the Fed funds rate will probably result in smaller corresponding upticks in mortgage rates. This could be due to continued competition among lenders to originate loans in a generally depressed mortgage market.
The Federal Housing Finance Agency (FHFA) made headlines recently after announcing the lending limit on conforming mortgages would be raised to over $1 million.
While the precise limits on government-backed home loans vary by zip code and other factors, this move will undoubtedly make it easier for people to buy homes priced at or over $1 million. Previously, these home loans would not have qualified for conforming mortgages and would have been subjected to increased underwriting. Instead, borrowers hoping to finance million-dollar mortgages will now be able to utilize the same streamlined borrowing process available to those buying more modest homes.
This move comes not a moment too soon, as inflation and the U.S. housing crisis continue to push home prices higher. In fact, a recent study showed that a new record of 8% of U.S. homes are worth $1 million or more.
Short-term rental platform Airbnb has announced that it is partnering with numerous large multi-family property management companies that operate apartment complexes across the country. Airbnb is working with these companies to list a number of their units for short-term rentals as sublets. This is an interesting test of a potential new market for Airbnb and a new potential revenue stream for corporate landlords, who have traditionally focused on more stable long-term leases.
Of course, these landlords employ property managers who are used to managing leases and turning over units—though certainly not of the type and frequency typical of short-term rentals. Still, these landlords own and manage millions of residential units globally and represent a huge new source of inventory for Airbnb to unlock if test results are positive.
In fact, just one large landlord—Greystar, which operates more than 200,000 units globally—is set to test short-term rentals in more than 100 of its buildings in the United States.
We will be watching as the test unfolds and monitoring results to share with readers.
There remains considerable speculation among investors, financiers, and policymakers about the future of commercial real estate in a post-COVID world. Large employers are increasingly divided, with many offering employees work-from-home options and others insisting on returns to offices on at least a part-time basis.
As time wears on, though, data shows that businesses in a growing number of markets are putting the pandemic in their rearview mirror. Commercial rents in several key markets are on the rise, with multi-family spaces in Southern California and retail spaces in South Florida reaching new heights. This highlights an opportunity for investors to benefit from price appreciation in these key markets, as stable demand for commercial space compresses cap rates and pushes property values even higher.
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