Wednesday, March 4, 2009

February News Recap

Andrew Patterson - Associate Finance Officer, Seattle

Economic News Recap:

After 3.6 million jobs lost since December 2007, Bloomberg reports that unemployment will likely increase to almost 8.5% in 2009, contracting to 7.9% in 2010 as the economy begins to rebound. Orders for durable goods also fell 5.2% in January as sales of new homes reached record lows. As the economic news is grim, there was an issuance of agency CMBS in the last few days of February. This issuance, one of few in recent months, signals government agencies trying to revive the CMBS market which could free up lending capacity for banks as unsold CMBS paper sits on their books. Although it’s only a start, the ability to sell CMBS paper will result in increased liquidity for lenders.

Obama Administration’s Budget Released:

The budget President Obama released in the last few days of February discusses details of the economic policy that is being proposed to congress. The budget outlines plans for $750 billion in additional aid for the financial industry and an overhaul of the health-care system, tax policy and defense spending. With a government spending increase of 32% compared to the 2008 budget, Obama says, “While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity.”

Interest Rate Outlook:

Long term rates are steadily increasing as the volatility in the market continues. Ten year US Treasury rates are up almost 25 basis points in the past two weeks as the government has increased the supply of Treasuries to the market. As the Obama administration releases its budget, a substantially expanding national deficit will inevitably raise long term interest rates. Now is the time to review financing options on your commercial real estate property to position it properly in this challenging economy.

February 2009 Treasury Highlights:
• February 10 Year Treasury High: 3.02% on 2-28-2009
• February 10 Year Treasury Low: 2.65% on 2-17-2009

Issues Affecting Commercial Mortgage Rates:
• 10-Year Treasury increase of 35 basis points in February 2009
• Market turmoil prolongs lender’s hesitation to lend on commercial real estate
• Amid a credit crunch and a slowing economy, interest rates remain at near historic lows
• Life Insurance lenders have money to lend and are active in the market

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