By There are a lot of mixed signals in all the real estate markets across the US.
Some say the real estate market is crashing, some say it’s not.
I think we can all agree that everyone is seeing changes everywhere.
The types of changes you see will be based on your own personal markets and your own personal investment strategies. Some will see negative changes; some will see positive changes.
One of the biggest driving factors behind any change in real estate and our economy is the cost of capital in the marketplace.
There are Two Primary Driving Forces Behind the Cost of Capital…
The First One:
- The Feds and the prime lending rate, which is used to raise or lower the cost of commercial capital to the banking world. In other words, this rate/cost of capital is set by the Feds (Rothschilds) and is used as a way of arbitraging capital into the marketplace so the banks and Feds can make more money off of the borrowing community. (This rate is used to lend money on commercial loans, Investor RE purchases, unsecured lending, credit card rates, and business lines of credit just to name a few)
What it is NOT used for is lending money for primary home buyers like you and I.
4.75% is the current Prime lending rate. January 2022 the rate was 3.25% a total increase of 1.50% in the last 6 months.
The current Bank of America, N.A. prime rate is 4.75% (rate effective as of June 16, 2022).
2022 prime rate history…
June 16, 2022, 4.75%
May 5, 2022 4.00%
March 17, 2022 3.50%
What does this mean: Simple if BofA is lending money out at 5.75% on a commercial loan and they are getting capital from the Feds at 4.75% that equals a 1% rate increase (Arbitrage) on the cost of capital for the life of the loan.
The second type of capital is Primary Mortgage capital which fuels the home buying marketplace on a nationwide basis.
The US Mortgage rate is tied to the 10 Year US treasury which has been on the rise for the 180 days and is now stabilizing in the 2.9% range which will have a direct impact on the 30-year mortgage rates settling down for a little bit.
On January 1st, 2022 the 10 year Treasury was at 1.63% rate, today its at 2.92%. The highest it has been in 2022 was on June 14th and it was 3.480%.
We will continue to see a decline in the 10-year treasury over the next 120 days, which will spur a slight uptick in home buying as 30-year rates decline going into this election year because the DC folks want to be reelected and they are hoping you forget about the last 365 days.
The reason I am sharing this is to help people understand what drives the different markets and how it impacts some people and not others.
Raising the prime lending rate negatively impacts commercial borrowing power and the cost of consumer goods.
Raising the 10 Year Treasury negatively impacts the mortgage rates for homeowners.
The opposite is also true when rates go down.
What’s unique about our current economic environment is that you have a simultaneous increase in both at the same time which is creating a one two punch for everyone.
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