- John Panagako
Mortgage Rate Predictions for 2023 Commercial Multifamily and Health Care Loans
This year will be known as an unknown for most businesses as far as predictions go. The alarming rise of interest rates is a development that should have all real estate investors scrambling to take advantage of present rates as, most predict further increases. It’s important to lock in present rates for as long as possible. Some predictions forecast rising rates as soon as vaccines are more widely administered. Others contend that rates will rise slowly for the next several years. Some believe they should remain at present levels for the next three to five years. What are the “experts” saying?
“Forecasts published by the Economy Forecast Agency (EFA) take a bleak outlook, with a 30-year, fixed-rate mortgage around 7% in January 2023 and surpassing 11% in the fourth quarter of 2023. Fannie Mae has a lower prediction for the 30-year mortgage averaging between 6.2% and 6.6% throughout the year.”
What does this mean? Most all economists believe rates are the lowest they will be for at least the foreseeable future. Some predict slight increases and others believe the economy may dictate faster rising rates. All are predicting a hike in rates for the next several years. By how much, is anybody’s guess. Bottom line is they will probably never be any lower than today’s rates. The thirty-five, fixed refinance rate today for multifamily refi’s is in the range of 4.75% estimated from our own recent history. HUD insured multifamily refinance/acquisition rates for 35 year fixed mortgages have been the lowest in the market since Trust Mortgage was founded in 1988. Rates are fixed for a new construction loan with a 40 year permanent using FHA mortgage insurance at 25 BP higher than refi/acquisition rates.
A factor that most people ignore is the how rates are affected by the money supply. If the money supply grows faster than economic output inflation follows in a normally functioning economy. The money supply in the U.S. has been increasing at alarming rates.
“(Reuters) - Some economists are warning that surging money supply may exacerbate a rise in U.S. inflation, which is already accelerating at its fastest rate in more than a decade. Money supply - which measures outstanding currency and liquid assets - rose 12% year-over-year in April, according to The Center for Financial Stability's Divisia M4 index including Treasuries. The measure has been running between 22% and 31% each month since April 2020, fueled by unprecedented economic stimulus from the Federal Reserve and U.S. government. That compares with annual growth of around 3-7% that was common from 2015 to early 2020.”
What this means to some is that economists have no benchmarks to accurately base any predictions. Caution is therefore warranted. In times like this, people become successful by adapting to conditions and protecting their current assets. Most say cash is king. Is this true in an inflationary economy?