Hard to imagine that graduation events are behind us and summer holiday plans are in full swing for so many. The overall significant element for the country is that the US economy keeps chugging along!! Even though economists can interpret minor signs of the economy slowing, the macro picture remains broadly positive. The elephant in the room is when will Chairman Powell and the Federal Reserve feel comfortable enough to start reducing for this year… Our feeling is that the Fed wants to cut rates, but pulling the trigger requires a bit more quantifiable economic information such as weaker employment and declining retail and housing sales helping move the needle down closer to the Fed’s projected inflation target rate in the low 2’s. We’ve experienced record-breaking tightening cycles in the last two years which have been a reality shock financially for many, especially the broad-based middle class. Our read is that even if inflation stays in its current range, a weak employment report in July might be enough of a catalyst to encourage the first rate cut after all the rate increases.
Let’s not minimize the November Elections and the inherent long-term effects on economic and tax policy in the next couple of years. This statement obviously has important ramifications.
The real estate market has remained buoyant throughout the first half of the year. Purchase volume is considerably less after the initial thrust at the beginning of the year when mortgage rates were in the high 5% area for a short period of time. Important—-There is still a fair amount of activity and prices have remained sticky with minimal price retraction. Rates have been slowly declining, and we are hopeful that with a Fed rate cut within the next month or two, rates will migrate back into the high 5% range. Rates in this area should create a stronger demand in the purchase market. There is a tremendous amount of pent-up demand at all price points that have been affected to a large degree (with golden handcuffs of property owners having rates in the 2’s & 3’s). These low interest rates and low payments have not encouraged the move-up buyers to stimulate the market, which historically is important. New household formation currently is the major source of buyer activity.
Brief update on certain lending areas that are important to the marketplace:
- 80% LTV up to $5,000,000
- 85% LTV up to $2,500,000
- 90% LTV up to $2,000,000.
- 96.5% LTV up to $1,149,825
- Conventional loan amount for 2-4 Units have also expanded:
- Up to $2,163,000 Loan for a 4 Unit property
- Up to $1,741,000 for a 3 Unit property
- Up to $1,440,450 for 2 Unit Property
With the conventional loans, the underwriting is sometimes less restrictive and can help save a transaction. We also have a wide array of Reverse Mortgage products which have become much more user friendly. One product in particular is a 2nd Mortgage at 9.99% with no prepayment penalty. This is an excellent vehicle for retirement age clients or borrowers seeking to raise additional cash without monthly payments (Interest accrues to the principle). This can be ideal for someone who is considering selling their house within the next 5 years.
Many clients have reached out as a result of their interest only fixed period of time adjusting to a new principal and interest payment with a 23 Year or less amortization. Needless to say, payment shock is an understatement.
Important, we are very knowledgeable in the Commercial and Apartment loan area and many of our borrowers have loans adjusting and/or maturing.
We feel that now is an important time to position Real Estate activity for year-end interest rate cuts which historically fuel the purchase market and the resulting increase in prices.
Stay Tuned!!
Personal Regards,
Gloria Shulman, Curtis Cohen, Ted, Coby , David, Ben and All of us at Centek
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