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Mortgage Opportunities During Times of Market Volatility

During episodes of market volatility we often counsel clients to check mortgage rates and determine if it makes sense to refinance real estate debt, whether on a primary residence or investment properties. While the borrowing costs for non-real estate loans often increase during periods of market volatility, the borrowing costs for real estate debt often fall during turbulent times.

The reason is that since US Treasury bonds and other government-backed securities (such as most mortgages) are perceived to be safer, they often rally during periods of volatility. Thus, while market volatility can cause capital to exit the markets and drive up the cost of most debt, mortgage rates often decline because government guarantees attract capital to the mortgage market.

We can see this plainly when we compare 30 year mortgage rates with 10 year US Treasury yields, over the past 20 years:

Furthermore, we can see that the correlation between mortgage rates and US Treasury yields is incredibly consistent across time and varying levels of rates. The below chart goes back to 1990.

While market volatility can be unsettling, it can also create opportunities. We'll gladly accept some market volatility if it creates opportunities for our clients and real estate managers to lock-in lower borrowing costs.