November 2024 Market Rate Update
Each month, the IAACU Small Business Team aims to provide you with insights into the current trends in Commercial Real Estate market rates, which are influenced by movements in the US Treasury yield.
As we move into November, our October rate forecast hit the mark once again. We anticipated that the 5-year U.S. Treasury yields would rise but remain within a range of 3.60% to 4.10%. October's actual performance aligned closely with this forecast, with yields fluctuating between a low of 3.51% and a high of 4.15%.
Looking ahead, November is shaping up to see rates continue their upward trend. After five consecutive months of declining month-over-month averages, the 5-year Treasury rate in October surged by over 41 basis points (bps), or 0.41%. This upward momentum appears to be carrying over into November, with Treasury yields opening significantly higher at 4.22% compared to 3.65% on October 1st.
What’s Driving Rates Higher?
There’s no single cause for the recent rate increases, but several factors are in play:
- Economic Policies: Some analysts point to the anticipated economic policies under President-elect Trump, which could be impacting market sentiment.
- Rising U.S. Debt: Others believe that the acceleration of U.S. debt is prompting Treasury buyers to demand higher yields to compensate for increased default risks.
- Resilient Economy: Strong economic indicators such as a robust jobs market and healthy consumer spending may be limiting the Fed’s ability to aggressively cut the Federal Funds Rate.
- Persistent Inflation: The stickiness of inflation also plays a significant role in keeping rates elevated.
Regardless of the reasons, the trend is clear: rates are moving up.
The Big Question: How High Will Rates Go?
While predicting the exact peak is challenging due to the many variables at play, our approach remains consistent: relying on historical data from 5-year U.S. Treasury yields. As of early November, yields have climbed back to around 4.20%, a level not seen since July. While the 3.90% level may provide some resistance, the upper limit remains uncertain. In volatile periods like this, rates can swing 40-60 bps within a month. Thus, we expect yields to test upper resistance near 4.40%, with an outside chance of hitting 4.60% if unexpected events arise.
Implications for Borrowers
Given these elevated Treasury yields, strong borrowers with solid collateral should anticipate Commercial Real Estate loan rates in the range of 6.65% to 7.20% from IAA Credit Union, with potentially higher rates from other institutions. For equipment loans, expect an additional 0.50%-1.00% on top of those rates, depending on credit strength.
In this environment, if you're offered a rate lock that fits your budget, we strongly recommend securing it. The risk of waiting for rates to drop is significant. We also suggest working with lenders like IAA Credit Union, which offers a one-time float-down option on commercial loan rate locks. Contact us for details.
A Word of Caution
In the current rate environment, everyone is eager to secure last month's lower rates, but be cautious of "teaser" rates that may seem too good to be true. Some lenders may offer unusually low rates, only to recoup lost interest through high closing fees, especially in refinances where costs can be rolled into the loan. Before committing, ensure that all origination points, discount points, or other fees are disclosed in writing.
If you have questions or need further assistance, reach out to us. We’re here to help you navigate these changing conditions.
Read our October Market Rate Update.
Contact our Small Business Team.
*Rates from Resource Center | U.S. Department of the Treasury as of November 7, 2024.
