State and local governments borrowed nearly $9 billion for affordable housing so far this year — the most for the period in at least a decade — as buying a home in the U.S. remains expensive.
The Michigan State Housing Development Authority's recent $425 million bond sale is expected to help more than 2,700 families get lower mortgages, said Chief Financial Officer Jeffrey Sykes. Rhode Island Housing sold about $125 million of non-taxable bonds to aid first-time home buyers. Colorado ski town Telluride borrowed $31.8 million, half of which will be used to buy and build affordable rental housing.
The 57% year-over-year jump in issuance of housing bonds coincides with a period of lower borrowing costs in the muni market. The yield on the 10-year AAA benchmark is down 1.1 percentage point since Nov. 1, the start of a prominent rally. Mortgage rates, meanwhile,
While affordable housing has been a priority for state and local governments for years, one of the main drivers of recent debt issuance in the sector has been their eagerness to retain their residents, said Alice Cheng, vice president and municipal credit analyst at Janney Montgomery Scott.
"Cities and states cannot afford to lose their middle-class population to somewhere that's more affordable," she said. "It's kind of an erosion of the resource base and the tech space. So having good, affordable housing for their community is important."
Borrowing through the tax-exempt market is cheaper and helps these entities underwrite mortgages for middle- and low-income buyers at a lower rate than the mortgages they would get from a traditional broker like a bank. Proceeds from housing bonds can also be used to acquire and construct affordable housing.
Rhode Island Housing benefited from lower borrowing costs in the muni market during its February issuance, said Bernadette MacArthur, the agency's director of finance. The bond sale came with a yield of about 4.5%, compared to 5.45% in October, she said. That allowed the agency to put a lid on mortgage rates at 5.87%, compared to the national rates of around 7%.
"Since the beginning of 2022, tax-exempt bond financing has provided us with better financing rates so that we can pass things down to borrowers more efficiently," MacArthur said. "And then we accompany that with our down-payment assistance. So, we're serving a decent amount of folks that may live paycheck to paycheck."
But it's not just housing-bond issuance that has been up. Overall muni issuance has climbed about 38% year-over-year, with borrowers diving in after staying on the sidelines waiting for market volatility to subside.
Mortgage rates are also stabilizing, and while new-home sales in U.S. fell in February for the first time in three months, the housing market overall has shown glimmers of recovery.
Michigan State Housing Development Authority's Sykes, however, continues to highlight the need for affordable housing. The authority's lending rates are at 6%, he said.
"Sometimes, a percent less than what they could get in conventional rates — that's the difference between someone being able to afford or not afford buying a home," he said.
