Let’s have a more thought-provoking conversation about this weeks’ news.
You guys don’t need me to tell you what happened this week. Everyone with a microphone has been flipping out all week about the first cut on the Federal Funds rate in 4 years. We are entering a new era, one that we’ve been waiting for, one the economy needs, one that typically bodes well for the housing market.
As you all know, the Fed Funds rate is not the direct equivalent of mortgage interest rates. Ironically, mortgage bonds initially yawned at a 50bps Fed rate cut and then actually went slightly negative before closing out the day. Yes, mortgage interest rates worsened slightly on Wednesday after the announcement. However, if we zoom out, this is without a doubt good news for mortgage rates, and they are expected to continue cooling off.
Powell’s presser and the commentary following the rate cut is what really gives me confidence about rates trending down quickly. He thinks that inflation will continue to cool as they continue to cut the federal funds rate. Inflation is the enemy of mortgage bonds, so if Powell is right – we are heading into a period where there would be multiple factors pushing mortgage rates down. Also noteworthy is that the yield curve, the spread between the 10-year treasury note and 2 year is no longer inverted. I don’t want to lose you here, so let me explain very quickly – usually when you invest your money for longer, you will yield a better return. For the past few years, everything has been so wonky that shorter-term investments have been giving better returns than longer ones. This caused the spread between the 30-year fixed interest rate and other loan programs that typically have better rates to flip. Now that the yield curve has flattened, interest rates on shorter term loan products like the 15-year fixed mortgages and also on adjustable-rate mortgages will trend down.
This is a lot of really, truly great news for buyers, because it improves their buying power.
Lower rates are also great for sellers because it brings more interest on their home.
This is where the catch 22 for buyers comes in. We’ve spent a significant amount of time warning buyers NOT to wait for lower interest rates because prices will likely go up as a result.
And that’s true.
But I saw something this week, that made me sad. A well-intentioned realtor had a reel that was starting to pick up speed and gain a bit of virality. She says in her very short video that if interest rates go down, buyers are going to flood the market and home prices are just going to go up. The very first comment on the video was from a consumer – meaning not a realtor or lender – a normal human, probably someone who’s been trying to buy a home for a while, given the tone of his comment.
He said: “If we don’t buy, prices go up. If we buy, prices go up. We need a new system.”
This is a big problem.
I’ve given so many presentations on housing affordability and how it impacts mental health and the power we have as real estate professionals. I could have written a whole post today about the kind of rhetoric we should all use when discussing this new cycle of rate cuts. And I will another day, but I want to go even deeper today.
Is the system really broken?
The politicians and media are talking about how housing affordability is one of America’s biggest problems. They tend to blame institutional investors, Wall Street, interest rates, and corporate greed. But is the blame really on us?
If I asked you, personally, should we build more homes in your neighborhood? It would increase density, right? It might mean more traffic in the area. Construction noise and mess initially. Your home value might go down a little bit with the increase in inventory.
I’m betting you are thinking hell no.
Do you realize that’s the only way we bring down housing costs? More housing. More inventory. Density is a touchy subject, especially here in Reno. We don’t like the hit to affordability we’ve recently taken, and we like to blame Californians for driving up the cost of housing. Nevermind the fact that we have golf courses inside city proper. Vast areas of land that could be used to bring down the cost of housing so your grown children could finally afford to buy a home. I really love the green grass though, that’s what we say.
I’m pushing it here, I know. But I’m going to keep going. Nevermind the city council meetings, whereas local citizens we fight those building permits for more condos or apartments. All housing does benefit all housing, but we get so mad about it that in South Reno new apartment buildings were lit on fire multiple times during the construction process.
My friend Trevor at Address Income actually said it best. As a society, we selectively choose to keep housing costs high and then we complain about it.
So as a realtor, what stance are you going to take?
Oh, you didn’t know you had to take a stance? You have heard the expression that if you don’t stand for something, you stand for nothing right?
If you’re going to be someone’s real estate advisor, especially if you want to be their lifelong advisor on all things housing and investing, you’re likely going to have to tell people what you think. Your sincere, honest, “if it were me” opinion. The hope is that when you’re asking those “what would you do if this was you?” type questions, your opinion can be an educated one. I often find that sometimes it’s not that we are prioritizing covering our own ass, it’s that we haven’t really thought about it enough.
I challenge you.
Spend some time thinking this weekend. What do you think fixes the housing crisis we are currently in? I’d love to hear what you come up with so please reply or comment. We are the boots on the ground, we do real estate all day and we encounter the realest of real time situations in this market. Let’s have an intelligent conversation about what it’s going to take to keep the American dream alive.
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