As we end 2009 (and not a moment too soon for me), it appears that long-held opinions and warnings of interest rate increases are starting to come true. Certainly, the Federal Reserve has kept short-term rates low and the Prime Rate remains at just 3.25%, but the benchmark 10-year Treasury rate, a rate set by the market rather than government policy wonks, has begun its climb from an extended period of historic lows.
So what? Very few borrowers are getting long-term financing on shopping centers or office buildings right now anyway, so how does an increase in long-term rates hurt?
An increase in benchmark rates will directly result in an increase in residential mortgage rates that will make housing less affordable going forward. Most economists agree that a recovery in housing is a critical element in the overall economic recovery, so anything that negatively impacts housing is cause for greater concern.
A word, therefore, to potential purchasers of housing who have been waiting for home prices to bottom out: housing affordability is a combination of home prices and the cost of financing. It is arguable whether housing has bottomed out in our markets (I think it has), but fairly clear that financing costs are going back up. This may be the best time for a long time to get off of that fence and make a housing move.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
