What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
Rate news summary
From Freddie Mac’s weekly survey: The 30-year fixed averaged 4.38 percent, up 6 basis points to the highest rate in almost four years. The last time the 30-year fixed was higher was in April 2014. Last week’s rate was 4.32 percent.
The 15-year fixed averaged 3.84 percent, 7 basis points higher than last week’s 3.77 percent and the highest 15-year rate since May 2011.
The Mortgage Bankers Association reported a 4.1 percent decrease in loan application volume from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $453,100 loan, last year’s rate of 4.15 percent and payment of $2,203 was $61 less than this week’s payment of $2,264.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at one point cost: A 15-year at 3.625 percent, a 30-year at 4.125 percent, a 15-year agency high-balance ($453,101 to $679,650) at 3.75 percent, a 30-year agency high-balance at 4.375 percent, a 15-year jumbo (over $679,650) at 4.25 percent and a 30-year jumbo at 4.375 percent.
What I think: I get to share with you what I learned earlier this week attending the Mortgage Bankers Multifamily Housing Convention in San Diego.
Pick your poison. Financing is available for everything from apartment purchasing, refinancing, rehabilitation, construction, senior living, student housing complexes, mobile home parks and even commercial-residential mixed-use investing.
Multi-housing or commercial loans are defined as five or more units. Residential lending is defined as one to four units.
Done right, investing in apartments can earn you more real dollars than investing in single-family homes.
There is an economy of scale when revenue is coming in from many tenants to cover one commercial mortgage. If one tenant in a building moves out and you lose rent for that period, you still have the other tenants covering. If a tenant moves out of your single-family rental, you are burdened with covering the entire payment until you get a new tenant in there.
Let’s talk rents.
When the rental market first seemed to stabilize in 2010, landlords were asking $1,579 for a two-bedroom Orange County apartment, according to Joshua Ohl, senior market analyst at CoStar Group.
Fast forward to the current market, landlords are asking $2,117 for that same two-bedroom unit. In less than 8 years, rents climbed a staggering 34 percent based on CoStar’s figures.
“Current effective rates (with concessions) come in at $2,094,” said Ohl.
Twenty-five percent was the smallest down payment financing I could find as I walked through the exhibitors hall. One particular investor largely ignores traditional cash-flow requirements (which most lenders use to calculate the minimum down payment), usually called debt service coverage.
Having paid for college housing for two of my kids and paying for kid number three now, I was most fascinated with financing facilities for student housing.
These can be apartments, frat houses and even large homes sliced up to accommodate individual tenants. Tenants pay a room premium (which means investors might make a higher profit), but it’s still cheaper than renting an individual apartment.
Honorable mention goes to Freddie Mac as it re-enters the low-income housing tax credit, or LIHTC, market. Designed to make rents more affordable, particularly for those earning 80 percent or less of area median incomes, Freddie will provide up to $500 million in tax credits.
The LIHTC program infuses cash equity into low-income housing properties, reducing the debt burden for the development of new properties or rehabilitation of existing properties.
The benefit to the tenant restricted rent charges. For example, based on 2016 U.S. Census data, Orange County rent was $1,608 (census figures tend to be lower than CoStar shows for rents). The projected restricted rent would come in at $1,069 or 50 percent lower, according to Freddie Mac spokesman Chris Spina.
A note of caution. Some folks at the convention candidly told me rent control – currently ought in a number of California cities – could be devastating for apartment investors.
Jeff Lazerson can be reached at (949) 334-2424 or jlazerson@mortgagegrader.com His website is at www.mortgagegrader.com.