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How will rates impact the summer buying season? 

Why do we call the spring and summer buying season anyway?  Some of it is just logic but there is also data to support this.   Better weather brings people out, sellers like to (or are advised to) show off their homes when the yard is green and blooming.  Spring doesn’t just bring flowers, for many potential buyers it brings tax refunds to boost their down payment.  If they have children, buyers also want to be settled before the new school year starts and busy holiday season. 

Like I said, the data supports this theory that more homes are bought and sold during summer months as well.  Homes sold in late spring and early summer net the sellers more money, like thousands more according to ATTOM Data Solutions.  Bankrate says the premium for selling during this time as opposed to October is upwards of 9%.  So spring is said to be the peak season for activity in our space. 

Will this year be different? 

We started this year very optimistic about interest rates.  The overly optimistic were saying we’d see rates in the 5’s by this summer.  The more conservative said we’d see a slow, gradual decrease in rates with the bottom likely not happening until 2025.  No one was really bold about saying what that bottom would be – rates in the 4’s?  Maybe just low 5’s?  I think almost everyone agrees we won’t see 2% again.  But, what if Donny comes back to the White House?  He held rates at zero for a long time.  Some would say he got us into this whole mess. 

I’m not complaining, I built generational wealth for my family from March of 2020 to March of 2022, the period that ole Donny boy pressured the Fed to keep their fed funds rate at zero.  It did, however, contribute to this little inflation mess we are in now.  If he wins the election, what “guidance” will he give the Fed this time? 

Let’s pivot here, before this conversation gets too heated.  We’re talking about spring and summer anyways and the election isn’t until November. 

The Fed did not cut rates. 

Yet.  The first quarter is wrapped and we are still hovering between 6 and 7%.  The first of three promised rate cuts has yet to materialize but the markets, investors, buyers and sellers are all waiting with bated breath for any sort of hint.  Powell spoke on Wednesday followed by more than half a dozen other Fed policymakers on Thursday.  Let’s start with the big dog. 

Powell reiterated that the Federal Reserve is not a political institution. 

If he has to say that though…I won’t beat a dead horse.  He said the Fed has time and needs to continue to assess the data before reducing rates.  Basically, they are waiting for more evidence that inflation isn’t going to spike back up.  Cleveland President Loretta Mester said she thinks the central bank is getting closer to the kind of confidence they would need to initiate the first rate cut.  Neel Kashkari said he questions whether a rate cut needs to happen this year at all.  (Luckily, he’s not a voting member this year.) 

Chicago Fed Chief Goolsbee thinks the hot inflation numbers from January and February shouldn’t freak anyone out and inflation is still on track to hit 2%.  Fed Futures markets are betting on what the new neutral interest rate will be.  The Fed thinks it is 2.6% that will be the magic number that neither slows nor stimulates economic activity.  The markets think it’s probably more like 3.6%.   

This morning, the March jobs report was expected to come in showing 200,000 jobs added.  On Property Pursuits this week, we speculated on whether the data we get in this report is even accurate.  It was a pretty interesting episode this month, so if you didn’t catch it live – it’s still worth a listen over the weekend.  Back to this morning, the number actually came in at 300,000 jobs added!  And the revision to the previous month’s reading was actually higher.  So, this leads me to think Powell’s higher for longer schtick wasn’t any empty threat when it comes to rates. 

If rates stay where they are… 

What we are seeing right now is that if a property is priced to sell, there will be a bidding war on it in the first few days on market.  In this scenario, my preapproved borrowers are losing the ability to negotiate on price and definitely for any sort of seller concession.  We are putting our best foot forward right away, sometimes up to $150k above list price.  Yet we are still seeing other homes, especially above $1.5M sitting longer on the market.  Truly though, the current buyer market is not in the mood to overpay for a home so anything overpriced is sitting. 

If rates stay in the current range, then we will continue with a similar amount of demand.  We may see a slight uptick in inventory the next month or two based on sellers wanting to move their property during buying season.  This could be good news for the buyers who are actively shopping and staying nimble with their strategy. 

If rates drop… 

We move more into a sellers’ market.  Wouldn’t lower interest rates be good for buyers?  It’s a good question and sure, a lower interest rate means a lower monthly payment which means improved buying power.  The problem is that it means that for everyone else too.  This is the logic behind your competition becoming tougher and your ability to buy a home getting harder as interest rates cool off.  If rates drop to the 5-6% range, we will see a lot more buyer activity.  That increase in buyers will support homes that are slightly overpriced.  It will make the bidding wars more heated. 

If rates go up… 

I think this scenario is the least likely.  We’d have to see some very hot inflation numbers or the Fed do something really dumb with their balance sheet.  But if rates do go up, this could actually be good news for the buyers who still qualify as they will have more of an upper hand against sellers.  I see seller concessions combo’d with price reductions.  Of course, it would be shitty for sellers out there who feel trapped in a home that no longer fits their needs.  Even shittier for buyers who would be priced out of the market again. 

How do you prepare? 

It’s a really excellent time to research creative financing.  How can you compete with cash buyers?  If you’re self employed, what loan programs will boost your buying power?  Are you trying to move up to the luxury market, which jumbo loan will allow for a higher debt-to-income ratio?  As a first time homebuyer, which grants are still available and what other unique loan programs will get you a lower monthly payment due to reduced interest rates and better mortgage insurance premiums? 

We’re putting together a free online class to go over all of the loan programs the mainstream media and Rocket mortgage isn’t telling you about.  Join us on Thursday, April 18th at 5pm.  Register here


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