INTEREST RATES INCREASE as COVID-19 TAKES HOLD
Some lenders moved swiftly. Others, more slowly. By morning on Tuesday the 24th, the backbone of real estate, the debt markets and real estate lending in general, seized up. Even with the Fed dropping lending rates to near-zero, lenders of all stripes, from major government lenders such as Fannie Mae and Freddie Mac, to national banks such as JPMorgan Chase, to regional and local players like Opus Bank or Banc of California, real estate lending made moves to virtually bring lending to a halt.
In the past week, borrowing rates on apartment buildings have shot up over 100 basis points. In the last week of February 2020, lending rates for apartment properties ranged between 2.75% to 3.58%. Today, JPMorgan Chase is quoting over 4.50% - an increase of 1%. Opus Bank has stopped all cash-out refinances. Fannie Mae & Freddie Mac are requiring a six-month interest reserve. Lenders are making borrowing so unattractive they have, in effect, stopped lending. According to our loan broker contacts, the primary source of lending today is private money, with reduced loan to value and increased upfront fees. Even private money is drying up, becoming more difficult to obtain.
Moreover, with the uncertainty surrounding social distancing and resulting job losses, combined with a messy eviction moratorium with unclear guidelines and an already tenant-sided court system, the immediate outlook is pointing in only one direction: down. And, the market today belongs to the cash buyer, the only buyer that can commit and execute.
In the property market drops following 9/11 and the Great Financial Crisis, it was those owners who moved quickly and sold their properties right at the start of trouble who were able to walk away with little pain. Those who waited longer witnessed greater market drops, more stringent financing, and slower transaction times. The property market took nearly 18 months to reach bottom in 2009, from its peak in mid-2007.
Be prepared for when the market starts. That’s the strategy that the top institutional players are following, and it should be your strategy too. Let us evaluate your property today so you have a clear picture of what you have, and a better idea of what could be.
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