Looking solely at US Treasury Security yields to get an idea of commercial mortgage rates can be misleading. FHA commercial mortgages today are priced comparably to what they were last year at this time, and even to what they were in December 2011, despite varying Treasury yields. Today, FHA permanent and new construction mortgages are pricing about 1% and 1.5% above 10-year Treasury yields. This time last year, Treasury yields were nearly half a percent lower than today, and in December 2011, Treasury yields were under 2%.
So what other factors impact rates? Mortgage security pricing is a function not just of the underlying “risk-free” Treasury yield, but also the outstanding supply of mortgage debt relative to demand, interest rate volatility and other technical factors.
For example, the wide spread between mortgage and Treasury yields in 2011 was due to reduced demand for mortgage securities from fixed income investors concerned about the state of the apartment market and still licking their wounds from the subprime fiasco. A year ago, the landscape was different. While 10-year Treasury yields were down, mortgage spreads widened as Mortgage lenders were churning out record levels of mortgage securities. There simply was insufficient investor demand to soak up all the volume. The good news currently is that mortgage origination volume is down, so investors are bidding down commercial mortgage security yields.
What does this mean for you? Just because Treasury yields today are higher than they were one or two years ago doesn’t mean you can’t get attractive pricing. Find out what options exist for you, and call Rockhall for a quote on your apartment or healthcare property. We are happy to put our expertise to work to structure the most attractive loan possible.