Rate market update

Mortgage bonds sold off today. What does that mean for real estate investors?

A stronger-than-expected read on U.S. business activity sent yields sharply higher. Here’s how to think about it deal by deal.

Mortgage rates are under fresh pressure after a sharp selloff in the bond market today. The move began after a stronger-than-expected report on U.S. business activity: S&P Global’s flash U.S. composite PMI rose to 58.4 in September from 56.0 in August, its highest reading since July 2021, and its gauge of input prices hit the highest level since October 2022.

The 10-year Treasury yield posted its biggest one-day move in nearly 18 months, climbing to its highest level in about 19 years (CNBC).

Bond investors are now weighing whether next week’s economic data will also point to a stronger economy and give the Fed reason to raise rates again. The Fed lifted its target range to 3.75%–4.00% on September 16, and today’s combination of faster growth and rising input costs makes it harder for policymakers to hold steady at the October 27–28 meeting (Tech Times).

Mortgage-backed securities fell nearly a point in price during the selloff. That does not mean mortgage rates jumped by a full percentage point. It does mean lenders may reprice loans, reduce lender credits, or charge more to obtain the same rate. Rates were already elevated going into today, with the average top-tier 30-year fixed rate above 7% for most of September (Mortgage News Daily).

What it means for your deal

For real estate investors, the bigger question is how a higher rate affects the numbers.

Purchases and flips

Higher financing costs can shrink the margin between your all-in cost and your expected sale price.

Rentals

A higher permanent loan rate can raise the payment, weaken DSCR, or reduce the loan amount available at refinance.

Bridge loans

If your exit depends on a refinance, run the numbers using today’s takeout terms, plus a less favorable rate scenario.

Private lending does not move in lockstep with agency mortgage bonds. Loan pricing depends on the lender, the property, leverage, and the exit plan. But when the broader rate market moves this sharply, it’s worth revisiting assumptions made even a few days ago.

Has a rate change put a deal in question?

At Lantzman Lending, we look at the full business-purpose loan scenario: the property, the project, the equity, and the path to repayment. Send us the numbers, and we’ll tell you how we would evaluate it.

Send us your deal

This article is for general information only and is not an offer to lend or a commitment of loan terms. Business-purpose loans are subject to underwriting and approval.