I’m going to cut straight to it, because you all have probably noticed. Interest rates are at their worst level of this year….so far. Yes, so far. They could get a little higher. There’s actually been a huge paradigm shift. Even just a few months ago, many were confidently predicting that the Fed would be cutting interest rates maybe at the end of this year but definitely next year. Now there are very few economists coming out with that kind of language and the Fed Futures market is singing a very different song.
Why? The Fed has a dual mandate – they only focus on inflation and unemployment. Right now, inflation is still “high” and employment still looks solid. The only tool the Fed has is monetary policy, which means raising or lowering interest rates. So they are looking at inflation that still needs tackling, meanwhile employment doesn’t appear to be suffering. They have free reign to keep getting after it and it looks like they are going to. The upcoming jobs report will likely give them more basis to do so, because we are going to start seeing seasonal hiring holding up the jobs number. It’s only temporary but nonetheless gives them the confirmation they need that they can keep fighting inflation without damaging the economy too much – because people can still find jobs.
We did get the PCE numbers in today, showing inflation took a baby step in the right direction. The headline inflation number was down 4 tenths of a percent. Let’s move into what you should be doing right now.
Pay attention to new builds.
While I don’t love telling you to go check out Lennar and Toll Brothers, because they have in-house lenders who are usually not the most experienced or what you would refer to as a trusted advisor, but also they are not me so that sucks… the truth is new construction is a big opportunity for buyers. Those builders need to move the inventory regardless of interest rates, actually because of interest rates – the interest rates on their construction loans. So they are offering amazing incentives in terms of upgrades and financing.
Even the project I’m involved with in Carson City as the preferred lender, which you should definitely check out, we are putting together some really attractive offers for buyers. So it’s an all around win if you are looking to purchase a home because while prices are what they are, a really good deal can be negotiated on new builds. And if you aren’t sure if the builder’s lender is trying to bait and switch you or hiding fees to eat up the credit, our team is happy to look over the fee sheet for you. We’ll tell it to you straight even if it isn’t to our benefit.
Access to Capital
This might get ugly. We are seeing bigger banks pull back on offering HELOCs and credit card interest rates going up. What is about to happen with commercial lending is a problem and will cause banks to tighten up in other areas. If you aren’t up to speed on what’s happening in the commercial space, I can fill you in quickly. Commercial loans are usually given with a 5-year fixed period, after which the interest rate adjusts to the current market rate. There are a lot of commercial investors out there with big, big loans on big buildings that were taken out at 2 or 3% interest. Within the next 12 months those 5-year terms will come to an end and the debt will have to be re-amortized at current rates which are nearly triple.
This means the building owner will have a much higher payment. Will he/she translate that down to higher monthly rents for their business tenants? Then the business tenants translate that into higher costs for their consumers? Will the building owner try to sell the building? Worst case, would they have to foreclose if the building is vacant and the new loan payment is triple? If banks have a bunch of bad debt on their books, it will impact their ability to lend in other sectors. This is something very important to watch because it will have widespread impacts on the economy and could lead us to a liquidity crisis of sorts.
Cash is not trash anymore.
Listen while you are waiting for interest rates to hit your specific sweet spot (reference previous articles) to buy a house, take advantage of them being higher. The money you set aside for your down payment – it better be in a high yield savings account. Or you can even get a 3-month CD at 5% interest right now. That’s where higher interest rates work in your favor. Your money can make some money while you watch for the right opportunity on a home.