Ok, now let’s get to it!

Start with the vid I made last week 📽👇

@johnbmortgage

⚠️ WARNING - Dropping mortgage rates are absolutely awesome and we've been waiting a long time for this! More homebuyers will be able to q... See more

How it started

Let’s take a little journey down memory lane. So we all know what started this mess that we call a real estate market right?

Interest rate hikes?? Sorta. Go further back.

That damn Jerome Powell!! I mean yes, but no, go one more step.

COVID, that has to be it!! Well, it was a result of the pandemic and policy changes after it, but get more specific.

It was inflation!! During the pandemic we were all forced into our home, stores were shut down, jobs were lost, supply lines were shot, money was printed and sent out across the country, and none of us knew what the hell was going on!

Well, because of all those things happened at the same time, being trapped at home led to government stimulus checks let to extra money being saved up led to extra spending led to further supply constraints led to higher prices (and record corporate profits)… aka INFLATION!

Inflation started to skyrocket during the shutdown. The Federal Reserve wasn’t willing to increase their interest rates to slow it down because the job market and broader economy were so on edge they could have triggered a full-on recession.

So instead they let it climb… and climb and climb and climb until they realized they were about to wreck the economy in another way… out of control prices! So what could they do? They only had one tool, and that was the Fed Funds Rate.

They only thing they could use was rate increases to make borrowing between banks more expensive, which makes all other borrowing more expensive, which cools economic growth and thereby inflation.

But by the time they started, the inflation rate was already headed toward 9% and they had to get aggressive with raising their rates (which started near 0%). So over the next nearly 2 years they pushed rates HARD, and mortgage rates went with them.

That rapid acceleration of mortgage rates caused fewer people to qualify, payments to skyrocket, and the real estate market to come nearly to a screeching halt. Since then inventory has stayed low, affordability went in the gutter, a mortgage applications dropped to levels we hadn’t seen in decades.

So we sat and waited and cried, hoping that the Fed would one day stop their assault on inflation and as a result, on us in the housing industry.

Where we are now

So things stayed bleak and we would hang on every word the Fed said until we finally started hearing what we wanted. Inflation is dropping drastically, people aren’t getting laid off in droves, and as of last Wednesday, the Fed is DONE hiking rates!

And not only that, they think we’ll even have 3 rate DROPS in the coming year! Well this sent stocks soaring and mortgage rates plummeting to their lowest point in a year!

This is great news for everyone! Mortgage payments will be lower, more people will qualify for homes which means more people will buy homes which means the real estate market is saved, right??

NOT EXACTLY

It’s true, more people will qualify with rates and monthly payments being lower. But that does NOT mean that things will be getting easier.

See, demand was already too high even when rates were at 8%. There are still plenty of buyers willing to bite the bullet and get into a new home now. Not to mention a ton of cash buyers looking to scoop things up now which the rate-sensitive buyers are out of the running.

In addition, homeowners have been far less willing to sell now than ever before, because most of them have rates in the 3s and 4s and they do not want to give those up! So demand has been outpacing supply which has kept a pretty healthy competition out there, even though the transactions are fewer.

Now what’s going to happen when all the on-the-fence buyers see that rates have dropped and decide “now is my time to shine”? Competition will go berserk! Because owners won’t be willing to sell their homes until rates get to the high or mid 5s, so demand will go up, supply will not, which means prices are likely to skyrocket, again!

We’ll see a return to $30k, $50k, $80k offers over asking, inspections and appraisals waived, and a dog-eat-dog seller’s market. Homebuyers will try to jump in, but there will be so may other highly qualified buyers to compete with, their best offers will fall of overwhelmed ears.

Then prices will get out of reach for millions of people again and they won’t get a chance to take advantage of lower rates after all.

So while this is great news as far as mortgage rates go, this does NOT mean things will be getting easier. Most likely they will get much harder as opportunities and options dry up.

So if you or one of your client’s has been waiting for rates to hit rock bottom, DON’T! Rates will move up and down, home prices will have only one direction to go, and that’s UP. So take the opportunity you have NOW, before someone else comes in and takes it.

Well, that’s my rant for this week 😆 I hope this helps break down what is on the horizon for 2024. Let me know your thoughts, where do you think this market is headed?