Mortgage rates remain high, home bond sales hit decade high

State and local governments have borrowed nearly $9 billion so far this year for affordable housing — the highest level in at least a decade — as buying a home in the United States remains expensive.

Treasurer Jeffrey Sykes said the Michigan Housing Development Authority recently sold $425 million in bonds that are expected to help more than 2,700 families obtain lower mortgages. The Rhode Island Housing Development Authority sold about $125 million in tax-exempt bonds to help first-time homebuyers. The Colorado ski town of Telluride has borrowed $31.8 million, half of which will be used to buy and build affordable rental housing.

The 57% annual increase in housing bond issuance coincides with a period of lower borrowing costs in the municipal bond market. The 10-year AAA benchmark yield fell 1.1 percentage points since November 1. Significant rebound.At the same time, mortgage interest rates Keep it twice as high Just like before the Fed starts raising interest rates in 2021.

Alice Cheng, vice president and municipal credit analyst at Janney Montgomery Scott, said that while affordable housing has been a priority for state and local governments for years, one of the main drivers of the industry’s recent debt issuance is the desire to retain residents.

“Cities and states can’t afford to lose middle-class people to more affordable places. It kind of erodes the resource base and the tech space. So it’s really important to provide quality, affordable housing to the community,” she said.

Borrowing through the tax-exempt market is cheaper and helps these entities underwrite mortgages for low- and moderate-income buyers at lower interest rates than mortgages obtained from traditional brokers such as banks. Proceeds from housing bonds can also be used to purchase and build affordable housing.

During the February bond issuance, the agency benefited from lower borrowing costs in the municipal bond market, said Bernadette MacArthur, finance director for the Rhode Island Housing Authority. She said the yield on the bond issue was about 4.5%, compared with 5.45% in October. Allows the agency to cap mortgage rates at 5.87%, compared with national rates of about 7%.

“Since the beginning of 2022, tax-exempt bond financing has provided us with better financing rates so that we can more efficiently pass on funds to borrowers,” MacArthur said. “And then we also provide down payment assistance. So we are providing quite a bit of financing. A lot of people provide services and they may be living on their wages.”

But it’s not just housing bond issuance that’s rising. Total municipal bond issuance has increased by about 38% year-on-year, as borrowers wait and wait for market volatility to subside.

Mortgage rates have also stabilized, and although U.S. new home sales fell for the first time in three months in February, the overall housing market has shown signs of recovery.

However, Sykes of the Michigan Housing Development Authority continues to emphasize the need for affordable housing. He said the bureau’s loan interest rate is 6%.

“Sometimes, one percent lower than traditional interest rates — that’s the difference between someone being able to afford a home or someone not being able to afford it,” he said.

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