You know what’s really tough about social media? Everyone has a platform to reach the masses. Yes, that’s also what’s great about it. The danger is that misinformation can very quickly be spread. The problem with misinformation in our space is that real estate, mortgages and homeownership are already pretty complex concepts. It’s not that it’s rocket science. It’s that it’s fast changing, emotionally charged and has a HUGE impact and MAJOR consequences in peoples’ lives.
There is a lot of hype out there about interest rates coming down in 2024. As we’ve talked about here, it’s going to be a bumpy road. We saw proof of that this morning with the jobs report and mortgage bonds are giving back some of their gains from this week in response. But I’ll come back to that. First I want to discuss the pros and cons of banking on rate cuts from the Federal Reserve in 2024.
Let’s start with the pros:
It’s nice to finally get some good news right? Interest rates have been really hard to stomach this year and we could all use something to look forward to.
The impact of interest rates is top of mind for you and you want to be strategic with your timing.
You might be able to afford more house if the rates are lower.
Here are some of the cons. Starting with a minor technicality that many seem to have overlooked:
There is no guarantee rates will come down in 2024. The Fed has announced no such thing, they’ve given zero promises or even hints that this is their plan.
We saw that every time rates went up this year 1 point, 3 million households were priced out of the homebuying market. So it’s safe to assume as rates come down, 1 point at a time – you will have significantly more competition out there. The problem is, you will be competing for the same number of homes. We don’t see any indication of inventory magically appearing to coincide with more favorable rates.
Let’s say 2024 pulls a 2023 and not only do rates not go down, they blast up?! Now you’ve again screwed yourself by waiting. The cost of waiting with real estate is always high because real estate is a long game. The sooner you get in the more you benefit.
Rates coming down would be a response, organically or from the Fed, that the economy is in a tough spot. That we are in a Recession. If you are personally affected by that, you may have a hard time qualifying for the same mortgage you’re preapproved for now. Keep this in mind in wanting to buy more house and take on more of a mortgage utilizing lower interest rates. Now is the time to make smart, conservative decisions.
Timing the market is a losing game. That’s it. That’s a fact. It’s like trying to catch a falling knife…
I can actually keep going with the cons. But essentially, after 11 years in this business – I’ve learned the best advise I can give clients is how to make the best decision with the information available now. Doesn’t mean you can’t make another good decision later when different information is available.
So what happened this morning?
The jobs report came in this morning higher than expectations showing almost 200k jobs added last month. This sucks but isn’t shocking. Why does it suck? Because it adds to inflationary pressures. Not only were more jobs than expected added, but the unemployment rate fell. Average earnings ticked up. Those are all indicators of a strong economy that can tolerate more rate hikes to combat inflation that is still above the Fed’s target of 2%.
Why isn’t it shocking? I just told you the industry wasn’t expecting this, they were expecting only 190ish jobs added. It’s not shocking because we talked about, right here, a few weeks ago that November and December economic reports could be skewed by holiday shopping. Some of those jobs added are likely seasonal jobs and don’t point to as stable an economy as the headline suggests…because those folks will be laid off Jan 1.
Similarly, as we’ve also touched on here, inflation readings for November and December may not be great either. This will be due, in part, to the record spending we saw on Black Friday and Cyber Monday. I shared how shocked I was about this on our monthly webinar this week. After the webinar, I found an interesting data point. There was a significant increase in consumers choosing the “buy now, pay later” option at check out. It was up 19% this year from last. That shows us that the consumer isn’t as strong and that they may have issues paying for the holidays, after the holidays are done and over.
Let’s talk honest guidance
You know what’s really tough about social media? Everyone has a platform to reach the masses. Yes, that’s also what’s great about it. The danger is that misinformation can very quickly be spread. The problem with misinformation is that our industries can already be pretty complex.
As the experts, we need to filter out all the noise and misinformation to find the truth for our clients. Our information sources need to be reliable and accurate, or we are doomed to give poor guidance. When we consider the amount of information and resources available
You are the main source of information and expertise for your clients when they make buying decisions. That means that they are looking to you to help them make good financial decisions and trust that if you were in their shoes, you would take the same path you are guiding them down.
So, are you filtering the right information? Are you giving your clients your honest opinion? Would you make the same decisions you tell them to make?