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> Fed Cuts Won't Drastically Lower Mortgage Rates

While mortgage rates have dropped slightly following the Fed’s recent interest-rate cuts, future declines are expected to be modest, with rates likely staying in the high-5% to low-6% range.

Main takeaways:

• Despite the Fed cutting rates by 50 bps, mortgage rates are expected to drop only slightly, to around 5.7% to 6.0%, as most of the cuts have already been priced in by bond markets.

• Mortgage rates move based on long-term bond yields, and the gap between short- and long-term rates is likely to shrink as recession risks decrease, limiting the potential for further rate drops.

• The mortgage spread, the difference between mortgage rates and 10-year treasury yields, is expected to decrease but won’t return to pre-2022 levels due to ongoing market risks and reduced demand for mortgage-backed securities.

More News and Reports

> Multifamily Market Sees Upswing: As debt costs decrease and cap rates climb, the multifamily real estate market is experiencing a positive shift. The sector, which saw a cap rate increase to 5.8%—the highest since 2014—is witnessing stabilized sale prices and a return of institutional-level investment activity. Despite ongoing supply pressures, particularly outside the Sun Belt, net absorption has outpaced last year's total in just the first half of 2024. This resurgence is attributed to rising household creation and easing inflation, maintaining a steady vacancy rate across major markets. The sector continues to face challenges from a high volume of under-construction units, yet the slowdown in new project starts suggests a potential peak in development. As rental market dynamics evolve, more renters are opting to renew leases, influenced by the decreasing affordability of homeownership.

> Optimism in Commercial Real Estate Market: Despite facing significant challenges, commercial real estate (CRE) investors are expressing confidence that the worst is behind them. A recent survey indicates that a majority believe CRE asset values are bottoming out this year, with 38% already seeing stabilization. Interest rate cuts anticipated from the Federal Reserve are expected to provide a much-needed boost, particularly benefiting sectors outside of office spaces, which have been hit hard by remote work trends and high vacancy rates. However, rising insurance costs remain a concern, potentially impacting growth across all regions. This sentiment is captured in the Burns + CRE Daily Fear and Greed Index, which reflects a modestly positive outlook for the coming months.