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You know who’s not stressed? Homeowners.

As mentioned last week, it’s been a wild year.  For many, it was truly stressful.  Inflation made the cost of our essentials skyrocket.  Interest rates were such a bummer. There were lots of layoffs and economic instability.  There was also and continues to be heavy geopolitical instability – multiple wars happening simultaneously and increasingly high tensions between major world powers.  It is not my intention to minimize any of that. 

There was one thing that many Americans didn’t have to worry about though.  If they owned their home, they were not sweating about what was going to happen to it.   

The American Homeowner looks Damn Good. 

Homeowners in this country are sitting on $28.7 trillion in equity as of September.  The majority of them have credit scores above 760.  Would you like to know the percentage of homes that don’t even have a mortgage against them, that are owned free and clear?  Forty percent!   

It’s a great asset to have.   

The first stressor of 2023 that I mentioned was inflation.  Homeowners have a built-in protection plan against that. They set their housing expense for 30 years when they bought their home.  Then, during the pandemic, they dropped their monthly payment SIGNIFICANTLY as interest rates fell into the 2’s.  Their largest expense stayed steady or even dropped as the cost of everything else spiked.  That eased the burden for many of them, for sure.  That’s probably why homeowners experience better mental and physical health, reduced rates of divorce and improved school performance and development of their children.  My teammate Sandi actually did a deep dive on the research regarding the benefits of homeownership – outside of financial gain – for our monthly webinar.   

We should talk about the quality of the asset itself as well.  Real estate did really well this year, considering the circumstances.  Even with mortgage rates getting to 8%, price cut percentages on active listings nationwide were less than 2022 levels.   Do you remember 2022?  I don’t remember any price cuts.  I only remember bidding wars.  So it’s wild to think that this year, the data shows there were actually less price cuts than back then. 


Heading into 2024 and the possibility of lower interest rates, we will see another acceleration on appreciation.  Which only further benefits the homeowner…There are 157 million working Americans.  We are looking at the biggest demographic pool of buyers in US History with Millennials.  Demand is pent up and about to surge.  That’s not opinion, that’s data driven fact. 

Speaking of lower interest rates, what’s the latest on that front? 

We’ve been watching the Labor Market. 

I was on a call for the LFG Society this week, which if you aren’t familiar is a gang of real estate professionals committed to helping each other level up – but like in a really intense way.  That’s why it’s a gang.  Anyway, the speaker on the call was Logan Mohtashami who is the lead economic analyst for HousingWire.  He explained that we don’t actually need the jobs market to break in order for rates to come down in a big way. 

The reason I’ve been advising we watch these reports is that once the job numbers cool, the recession will become pretty inevitable.  A job loss recession is a hard recession to ignore, so the Fed would be forced to respond quickly with stimulus, likely in the form of rate cuts. 

However, as we’ve seen in the past three weeks – the jobs report, at least at a surface level, hasn’t given any real cause for concern… yet interest rates have still come down.  Logan explained that inflation always spikes during a pandemic and not only because of Federal stimulus.  Supply chain issues during pandemics throughout history have driven up the cost of goods.  Then inflation cools naturally following the pandemic and interest rates come down.  Plus, as soon as the markets believe the Fed is done hiking, they don’t wait for a cut to react.  We just saw the market build in hypothetical rate cuts and interest rates improved immediately.  

What to watch instead? 

The spread between the 30-year treasury bond and the 2-year treasury note is actually more important to watch, according to Logan.  Typically a longer-term bond like the 30-year would have a better return than purchasing a shorter term, like the 2-year treasury note.  It’s logical that if you tie your money up for longer, you get a better reward.  Not lately.  This is the yield curve that folks have been fired up about because it inverted.  The yield on the 2-year is 3.4% versus the 30-year which is 2.75%.  When this happens it typically indicates a recession within two years.  But that’s not a new topic of conversation – lots of economists have pointed to that over the past 12-18 months.   

Focus on this instead. The spread between that 2.75% and 3.4% is something to pay attention to as it has and will continue to have a major impact on interest rates. 

This yield needs to un-invert.  Or revert.  Or whatever you would call a not inverted yield.  That started to happen earlier this year. The spreads started to get better but then the banking crisis happened in March and threw everything right back out of whack.  You see, when there is market stress – the spread between these two investment choices gets higher than it should be.  There’s more risk in the business of buying mortgage-backed securities, which means the demand for them goes down…which means…that’s right, higher mortgage interest rates.   

What we don’t want to happen is for the Fed to try to dump their balance sheet and create a sudden influx of bonds on the market.  Or if the treasury department issues more short-term debt, that would also increase the 2-year yield faster than the 30 year, which wouldn’t be good for our spreads.   

In the past couple weeks we’ve seen the spread improve and mortgage rates followed suit. The yield on the 2-year that I just mentioned being in the 3’s was in the 5’s just two months ago.  Mortgage rates two months ago?  Not pretty.  So I think you’re following me now.  We are going to watch this spread very closely. 

When to buy in 2024? 

Fannie Mae agrees with me that we are in recessionary times.  They predicted housing will hit its bottom (not crash, just the bottom of this cycle) in early 2024.  In my humble opinion, that means buyers should look alive right now.  Rates are trending in their favor.  There are still a lot of buyers out there who will be coming back with more and more vengeance each day that passes.  The next Fed meeting is March, it might have a rate cut.  The market has already built that in.  There is no need to wait it.  In fact, we’ve seen the Fed do a rate cut or rate hike and the market move in the opposite of the predicted direction just based on their comments. 

Make the best decision you can, with the information available right now. 



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