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The average rate on a 30-year mortgage has surged to 7.04%, marking its highest level since May and its fifth consecutive weekly increase. This rise in borrowing costs has left homebuyers facing higher monthly payments, potentially pricing many out of the housing market and prolonging an already sluggish real estate landscape.

According to mortgage buyer Freddie Mac, the rate has steadily climbed from 6.93% last week and has seen a significant jump from 6.6% a year ago. The increase is largely driven by higher bond yields, particularly the yield on the U.S. 10-year Treasury, which has surged from 3.62% in mid-September to 4.61% this week. Higher bond yields often lead to higher mortgage rates, as lenders use these benchmarks to set their borrowing costs.

The rising cost of home loans is particularly impactful on first-time buyers and those looking to refinance their homes at a lower rate. For many, the monthly payments associated with higher mortgage rates could amount to hundreds of dollars more, making homeownership less affordable. This shift has already begun to cool down demand, with fewer buyers in the market and a prolonged national home sales slump.

In fact, sales of previously owned homes have risen slightly in recent months, but the housing market is still on track to report its worst year for home sales since 1995. Despite the slight uptick in sales in November, analysts warn that full-year sales figures could be disappointing, reflecting the sharp slowdown in activity. This decline has been fueled by the steady rise in mortgage rates, which began climbing following signals from the Federal Reserve last year.

The Fed’s decision to curb anticipated interest rate cuts, in response to stubbornly high inflation and economic uncertainties, has further contributed to higher borrowing costs. With inflation still above the central bank’s 2% target and economic policies under a new administration potentially fueling costs, the rise in mortgage rates seems likely to persist.

For prospective homebuyers, these higher borrowing costs mean that affordability continues to shrink, particularly in an environment of rising home prices and limited housing inventory. Many are now opting to hold off on purchasing until either rates stabilize or decline.

Overall, the real estate market appears poised for continued challenges in 2025, as elevated mortgage rates and affordability concerns weigh on buyer demand and slow down housing market recovery. The outlook remains uncertain, with potential policy shifts and economic pressures playing a significant role in determining the future course of rates and housing activity.

Flushing Financial, a commercial real estate lender based in New York, has announced plans to raise $70 million to strengthen its financial footing. The move comes as the bank grapples with the impacts of rising interest rates, which have significantly affected the value of its investments.

According to reports, CEO John Buran has informed potential investors that the institution plans to sell off low-yielding bonds and loans tied to commercial real estate, including those backing multifamily properties. These sales, expected to incur losses, would require issuing new stock to generate the necessary capital.

The offering price for the equity sale has not been finalized, but estimates suggest it will range between $15 and $15.50 per share, a drop from the stock’s recent closing price of $17.25. This pricing reflects the challenges Flushing Financial faces in navigating a tough economic environment.

The bank’s decision highlights the broader struggles faced by community banks with significant exposure to commercial real estate. Like many regional banks with assets under $10 billion, Flushing Financial has felt the pressure of the Federal Reserve’s aggressive interest rate hikes over the past two years. The hikes have left these institutions with unrealized losses on their balance sheets, reducing their flexibility and heightening concerns about financial stability.

The Federal Reserve’s easing of interest rates, which began in September, has created some optimism among investors. However, regulators are still urging banks to improve their capital positions, often through confidential directives. This push reflects the ongoing challenges in ensuring the resilience of financial institutions during economic fluctuations.

Flushing Financial, which reported $9.3 billion in assets as of September, is not the first regional bank to face such challenges. Earlier this year, New York Community Bank raised capital to address concerns related to its commercial loan portfolio. Analysts expect more banks to follow suit, especially as stock prices in the banking sector have recovered somewhat this year.

Despite these headwinds, Flushing Financial has shown modest progress. Its stock has risen approximately 5% in 2024, though this lags behind the broader KBW Regional Banking Index, which has climbed 18% over the same period. CEO John Buran expressed cautious optimism in October, emphasizing the bank’s efforts to address challenges and build a stronger foundation for future growth.

The ongoing capital-raising effort represents a critical step for Flushing Financial as it adapts to an evolving economic landscape. By taking proactive measures, the bank aims to position itself for stability and growth in the years ahead, even amid persistent uncertainties in the commercial real estate market.

As community banks navigate these pressures, the sector will likely see a wave of similar actions, underscoring the importance of adaptability and resilience in the face of economic shifts. Flushing Financial’s ability to execute its strategy successfully will be a key indicator of its long-term prospects.