It now appears that the feared ‘sustained higher rate environment’ predicted by many notable economists of late has failed to materialize. Indeed, as of this writing, the 10-year U.S. Treasury is trading at 4.22% – down nearly 50 basis points from its 2024 peak in April, and approximately 70 bps from its post-COVID peak in October 2023. Based on our most recent placements, spreads appear to be tightening accordingly, as investors contemplate the likelihood of at least one Fed rate cut later this year.

With a lower 10-year and tighter spreads come lower household mortgage rates. We believe the U.S. owner-occupied housing market should begin to regain mobility in H2 2024, as homeowners who previously could not afford to move due to substantially higher mortgage rates begin to add inventory to the market. This will finally deliver the holy grail of inflation at or near 2%, inasmuch as inflation in the carrying cost of residences is, as a practical matter, the only thing driving inflation above that level at this point.

Further treasury rate declines and spread compression will undoubtedly help restore the confidence of developers of both 4% and 9% LIHTC housing in their ability to responsibly capitalize their projects.

To this end, Westwood continues to encourage affordable housing developers to consider employing its proprietary Affordable Housing Future Flow Contributive Asset-Backed Securities (AHFCABS), as a source of truly low-cost real estate acquisition and development capital. By utilizing this structure, developers are in essence borrowing against their own equity – but at investment grade bond rates.

For those not yet familiar with it, the future flow passive contribution structure enables developers to tap into the value of their residual GP/SLP cash flow from annual property cash flow, development and management fees, and disposition and refinancing proceeds – over the full life of portfolio properties – to create a borrowing base, the proceeds of which can be used for any purpose.

Because the execution of these transactions often requires four to six months from inception to closing, now is an advantageous time to commence execution of an AHFCABS transaction, in anticipation of considerably improved market conditions during the course of the second half of this year.