Re: To Refinance or Not!! - Posted by ray@lcorn
Posted by ray@lcorn on December 05, 2006 at 13:01:51:
Steve,
I’m in a similar situation with two properties right now, and my thinking is similar to yours. And as I weigh the risk/reward of acting now vs. later, the scale tilts toward the former.
Though I think a good case can be made for further decreases in long rates in the second half of '07, I think the potential near-term bottom for the ten-year is only about 50 bps from where we are now (4.4% as of today).
The downside risk of waiting for the potential decrease, as you mentioned, are monetary pressures that could increase long rates (though I don’t agree with the explosion theory), and I think the potential upper bound is around 100bps north of where we are now.
So my guess is the trading range of the 10-year over the next six months is 4%-5.5%, and the potential increase if I wait is 100bps, vs. a potential decrease of 50bps. In my mind that’s a 100% swing toward acting now.
However, don’t lose sight of the big picture. The above range for the next six months is within a longer term trend window that is heading toward 3.5%-5% trading range (according to Bill Gross at PIMCO), and will be evident once the recessionary pressures and consequent uncertainty about reflation are behind us in late '07.
Long term, the global capital glut is with us for a while… Sam Zell said last week that he thinks it will take six to ten years to wring the excess liquidity out of the system.
I agree, and if cheap money is not going away anytime soon, then sustained valuations over the long-term for stabilized assets are likely. And even though it’s a little painful to sit on idle cash, it’s a pretty good problem to have. Let’s hope the continued media hype about an imminent real estate bust will scare some owners into selling!
Your keeping his powder dry host,
ray
