By now you probably have heard that interest rates have risen to a 20-year high, but how exactly is this affecting Real Estate sales and prices? The Federal Reserve (the Fed) raises interest rates to slow demand for goods and services as with higher interest rates things cost more over time. The Federal Reserve does not directly affect mortgage rates as the rates the Fed control are only the rates that banks borrow from the Fed. This makes the cost of money to banks cost more so Banks raise their rates to the consumer to cover the increased costs to them. Since consumers get loans from Banks to buy cars, homes, consumer goods, and services the costs for all of it go up. In the mortgage arena, we have seen rates go from the low 3’s in January of 2022 to the low 7’s currently.
It should be obvious that a consumer will be able to buy less of a home in a high-interest rate environment, but home buyers don’t really understand how much it actually affects their buying power. An example would be a couple who has been making an income of $100,000 combined with a normal debt load of a car payment of $500 a month and student loans of $250 a month. This couple could afford a house with a 3% mortgage rate and 5% down at $561,000 sale price. At a 7% interest rate the same couple can now only afford a house priced at $356,000. This a $205,000 difference that has occurred in less than a year. This will hold true when qualifying for auto payments, business loans, and all loans to buy goods and services.
So with the diminished buying power of potential home buyers, you would think that Real Estate values will go down to accommodate the higher interest rates. You would be right in your assumption. This holds especially true in the higher priced homes where the people that were qualifying for a million-dollar mortgage can now only qualify for a $700,000 mortgage. Home sellers are having to come to grips with the fact that their home is not sellable at the same price it would have been a year ago. With older folks looking to retire in the next 5-10 years they are seeing the value of their Real Estate portfolio go down, and this may hold off their plans for retirement and holding on to their long-term jobs not making room for younger folks to fill the gap. Furthermore, the older generation has seen this before so they will be extra cautious with their money going into retirement and possibly not selling their family home to downsize for retirement as they may have originally planned.
The higher interest rates are pushing Real Estate values lower and this is making investors worried to the point they are holding back investing in Real Estate taking out a whole segment of Real Estate Buyers. As prices decrease you will be seeing appraisals come in lower-than-expected making selling a house more challenging when the sale depends on an appraisal. Those particular sales may fall through if sellers are not willing to lower their prices and eventually, if they need to sell, they will have to sell at a lower price. If interest rates continue to go up, and it is looking like this will be the trend, prices will have to continue to go down to accommodate those that can no longer afford to buy in the same price range as the lower interest rates would have allowed them to. The higher rates thin out the potential pool of home buyers as their buying power has diminished and those folks looking to move up by selling their existing home and buying a bigger one have dried up as well.
From a lending aspect, as rates rise, lenders know that the home values will be decreasing so the appraisal is going to be a much more important part of the transaction. FNMA and FHLMC will be cracking down in different markets where they know the prices are softening faster than other parts of the country, typically in higher-cost areas like California. Since MAE Capital Mortgage also does Private Money lending, we are seeing private individual investors who actually lend their own money to others, tighten up their requirements as well. This means less available funding for fix and flip programs, After Repair Value (ARV) programs, investor buy and hold programs, commercial funding, and more. Talking about commercial funding where that market has been killed essentially by COVID and Amazon coming in to fill the gap, has gotten even worse. As investors see the rates go up, they are less likely to buy or lend their money for Real Estate of any kind.
To conclude, higher interest rates make it more difficult for home buyers to buy homes that fit their needs. High-interest rates make home values have to come down to be able to sell their homes. Higher interest rates make the desire to invest in Real Estate and Real Estate Notes and Deeds a whole lot less. Higher interest rates make commercial lending even worse and make commercial values continue to decline. So, all in all. higher interest rates are not good for Real Estate values, resales, investments, and rehabilitation of real estate. If you are a potential buyer of Real Estate, you need to make sure your offer is a bit lower than the current market supports as prices will continue to fall as rates rise. If you are a potential seller of Real Estate, do it now before rates go even higher and be flexible in looking at lower offers, if you are not flexible you will not be able to sell your property in this crazy Real Estate market. On the bright side if you are well qualified first-time home buyer it should not matter to you what rates are so long as you can afford the payment associated with the house you want to buy. As a first-time homebuyer, you now have more inventory to choose from and if you buy now and interest rates continue to go up you have a low mortgage and an affordable payment, when interest rates go down in the future you can always refinance to the lower rate. So don't be afraid of rising interest rates as there is no perfect time to buy real estate but what I have seen over the long run owning is far better than renting so do it now and join the club of home ownership and let MAE Capital help you with buying your home and financing it as when you bundle with us you get perks like money for closing costs and an easier experience.
We know the state of our economy is the worst it has been since the financial collapse of 2008. We know we are having record inflation with no end in sight, and we also know that interest rates are being raised to combat the high inflation with no end in sight. What we are not being told is how to fix this, which I find as odd as the answers are all right in front of us, but it seems like it is taboo to talk about the right way to fix things. We know that gas prices are the highest in history which affects the delivery costs of goods and services. So why is it so hard for our elected leaders to figure out how to solve this problem in these modern times?
We need to explore the reasons why we have record inflation, high gas prices, and high interest rates. We know that the Federal Reserve has only one tool to fight inflation, and that is to raise interest rates. But the big question is why is inflation so high? This can be answered by analyzing where the inflation is coming from and how to fix it. We know that over the last several years since the pandemic started, the government has shut down the economy and paid it’s citizens to basically stay home. All this extra money that has flooded into the economy has devalued the dollar and that has caused some inflation. We also know that Americans have been at the mercy of other countries to deliver goods, pharmaceuticals, computer chips, and oil. This dependency on foreign suppliers has been a challenge as other countries were also under shutdown orders and some far longer than the US. We have all heard about the “supply chain” issues, which is really the big issue that is not being addressed by our elected officials.
We know that when there is a low supply of goods with the same amount of people trying to get these goods that the price of the goods will rise and we have seen this occur in 2022. To compound this issue when the United States slows its domestic production of oil this causes a decrease in the domestic supply of oil and more dependency on foreign oil and when foreign suppliers of oil slow their delivery of oil to the U.S. prices have to go up to slow demand of oil that is not there. With oil prices going to the highest in history this dramatically affects the cost of diesel that is used by the trucking industry to deliver goods to stores for Americans. With higher delivery costs you see higher prices on the shelf for consumer goods and commercial goods. In addition, farmers will have higher costs to run their machines to get the seeds in the ground and when then harvest the food for Americans. Thus, high prices for food as a result of higher costs to produce and deliver our food. Higher fuel prices also affect the individual consumer’s monthly budget as with high gas prices Americans have less money to spend on other goods and services that have raised due to the above.
Knowing this you would think you would have heard more about fixing the underlying problems with the supply of oil, and foreign goods that we are dependent on. It seems all we hear about is how oil use is bad for “climate change” and the Government’s desire to fix this. Granted the Earth is going through changes, but it has been going through changes from the beginning of time. To think that mankind has any control over it is just stupid and is a good excuse for globalists to try and control the masses with control over our basic needs. The proof, for those that live in a city and rarely go out into the world, would be to look at the Grand Canyon and there you can see firsthand how that climate has been changing long before mankind was even present. But I digress for the purpose of proving my point about the control of the masses and this is exactly why Russia and China formed BRICS to stay independent of Globalist's agenda, a topic for others to debate, but the “supply chain” is dramatically affected by all of this.
The way to fix our current economic dilemma is multi-faceted but the overall idea is to focus on the supply side of the economy and not so much on the demand side. The reason for not focusing primarily on demand, like the current administration is, is simply because there will always be a certain amount of demand for basic goods and services, and we are currently really close to a basic demand market. You see the Federal Reserve trying to curve demand by raising interest rates only can go so far then the high interest rates kill the entire market as capital is not readily available for expansion or even normal business activities putting the whole economy into a recession or worse a depression. If the supply side of the economy was being addressed properly, we would see more investment into the expansion of US supplies and farmers. Yes, we must stop being as dependent on foreign goods and oil. We should bring computer chip manufacturing back to the US and we should bring manufacturing back to the US most importantly we need to open up new oil exploration and pipelines to deliver oil more efficiently. We need to look to Hydrogen (the most plentiful element on the planet) as an alternate fuel source and explore other technologies that will curve our oil dependency. Electric cars are good for the short term, but long term they create as much waste as fossil-fueled vehicles. Investing in America and American engineering will be the key moving forward and education of our youth must be paramount for the US to stay independent and take the indoctrination to a certain set of beliefs out of our education system and focus on productivity not emotions as emotions don’t pay the bills. If the supply side of the economy is not focused on the economy will continue to spiral out of control with higher and higher prices for everything.
As most of you know Mortgage interest rates have been rising at a speed at which most people alive today in the home buying market have never seen before. Some of us old timers have seen this before and it is very true that history repeats itself and we should all learn from it. We are going to explore why rates are moving up so rapidly and then we will look at the future and where rates are heading and why. When I say history repeats itself all you must look to is the early 1970s through the early 1980s and see how monetary policy was run. I was a kid in the early 1970s and remember the gas lines and high inflation and interest rates that topped out right around 20% for a 30-year fixed-rate mortgage. During this, the government also set the interest rates for FHA and VA loans and put ceilings on gas prices.
If this sounds familiar it should be as the government has been involved since the beginning of time with free markets and it has never really worked out. In the 1970’s President, Nixon put gas price ceilings in place in hopes to make gas prices go down or at least stabilize them. This failed miserably as when you try to put a ceiling or a cap on prices that de-incentivizes producers from producing. During this time the government was also spending and expanding the government and services the government felt would help the common American. Then to pay for all the spending they were forced to raise taxes across the board and the Federal Income tax rate got as high as 60%. So, Government spending caused inflation, and the taxing of the citizens meant less money the average worker could take home on every paycheck thus they did spend less, and the economy was basically stagnant. During this time the term “Stagflation” was coined meaning a stagnant economy with high inflation. If this sounds familiar, then open your eyes and look around with the Government spending Trillions of dollars on “COVID relief”, the Ukraine war, AKA money being sent to the United Nations. Then we have all heard about the 87,000 IRS Agents they are hiring to make sure they get their money from the average American after they raise taxes on all of us. This type of economics is called tax and spending or Keynesian Economics.
This is poor Monetary Policy from an economic point of view. I can say without one doubt in my mind that if Monetary Policy continues down this road then we are in for many years of high inflation and high-interest rates. The government has totally neglected the economic curve's supply side and focused only on the demand side. The evidence is seen at the gas pump, the grocery store, at the automaker's showrooms, and the list goes on. Current monetary policy is to raise interest rates with the hopes that with high-interest rates consumers will slow their demand for goods and services, which has held true, however, when staples like food, fuel, transportation (automobiles), and housing prices have risen due to normal demand interest rates can’t slow the basic demand for these goods. Couple the fact that we have just come out of an economy that was shut down for basically 2 years the supply of the goods consumers need has been diminished as there were fewer workers to build or produce these basic goods. Since this has caused a shortage in supply and with the same amount or more consumers going after the same amount of goods and services with the same or less ability to produce more goods due to lack of labor and now high-interest rates or a high cost of money to pay for these workers to produce a normal amount of goods you get supply side inflation. If you have heard of this before you are not wrong, Ronald Ragan was the first to look at the supply side of the economic curve and after that was addressed in the mid-1980s the economy was more manageable. Also, with more workers working the government was getting more tax dollars by taxing the workers less and having more workers paying lower rates but more workers paying those lower rates made the government more money. This is a concept that has been lost by our current Monetary Policies which are only looking at the demand side of the demand and supply curve.
I think you now have the knowledge to see where this is all going unless some drastic changes are made. The economy has no feelings and reacts only to what is given to it. I will say without a doubt in my mind that if the supply side of the global economic and American economic curve is not addressed soon interest rates have to continue to rise. The Federal Reserve or our Central Bank only has interest rates to fight inflation with they do not have the ability to address the supply side of the demand and supply curve and without the Government’s policies changing to address this we will continue to see high inflation and high-interest rates. The way out of all of this is to actually do the opposite of what is going on currently. I agree with the Federal Reserve in raising interest rates as inflation is high, however, high-interest rates will not curve the demand and it will only hurt the supply side of the curve as it is costing companies more to have workers with high taxes and high-interest rates. Until the Government addresses the supply side of the curve this will continue to spiral upward out of control, and I am truly convinced that our current government leaders do not understand this basic economic concept. In fact, they have gone so far the other way spending money to “protect the environment” they have basically stopped the expansion of oil production in the United States, and with a low supply of oil you get higher gas prices. Oil is not only used for our automobiles but our roads, plastics, fertilizer, and so many goods are produced from oil that people don’t even realize. The price of fuel is directly related to our food prices, as well, and people may not realize that it cost more to deliver the food on a truck, it also costs more for the fertilizer to grow the food. It also costs more for the farmers to till the fields and harvest the food as that is all done with fuel. We are nowhere close to using electric vehicles for all of this and then you have to ask the question, are we going to need fuel to power generators to make the electricity to power all the electric vehicles? I agree we should be more environmentally friendly, but not at the expense of our way of life, and our economy invest more time to come up with real solutions not a knee-jerk to some environmentalists. The real solution to clean power is Hydrogen as 2/3 of the Earth is covered in water and when you burn Hydrogen the byproduct is water, why we have not gone down this road baffles me, but I digress.
So, I will conclude this by saying if we stay on the current course the interest rates will be around 8% by the end of the year, and by the first quarter of 2023, we will have interest rates at or above 10%. You might think this is a crazy prediction but look at the history of this type of Monetary Policy and see what happened last time. I am not a Doom and Gloomer, I consider myself a realist and everything to this point under the current Monetary policy has not worked or has made things worse. If you read some of my earlier blog posts and the dates, I wrote them you will see I have been dead on. Remember the economy has no feelings it does what it is told to do, all you have to do is look to see what it is being told to do and you will come to the same conclusion I have. Unfortunately, I have no say in how the government creates its policies and if I did I fear I would be called an “Extremist” in my views. We will see sagging housing prices, but the rub will be that no one will be able to afford them with rates as high as they are headed without some income inflation to match the current inflation rate, however, if you make more income but are taxed at a higher rate your net income will have gone down. We live in a world with cause and effect and if the elected people can’t see the cause and effect of their policies then We the People pay the price. If you are a first-time home buyer don’t be discouraged by all this as there are only 2 things you should be concerned about and that is “What is my payment going to be and what is it going to cost me to get the house?” Once you own the home and you can make the payment then it should not matter to you what your rate is if you are comfortable making the payment. When the rates come down you can always refinance to a lower mortgage payment. So now is a great time to buy your first home, but it is now before the rates go even higher because they will be worse before they get better.
Moving is a big job. One of the best ways to avoid becoming overwhelmed by the enormity of the task is to break it down into a series of smaller tasks. It can be helpful to create a checklist that walks you through what you need to do during the different stages of your move. So today, MAE Capital is here to help you do just that.
Eight Weeks to Moving Day
Start scheduling moving companies for estimates. Create a budget for your moving expenses. If you haven't already chosen your new location, pick one.
Considerations for Business Owners
If you are relocating a limited liability company from out of state, you may need to register your business with the state. The rules for registering LLCs vary by state so you need to research the rules before you move. You can handle the registration yourself or save some time and avoid expensive legal fees by using a formation service. Additionally, if you’re considering a mortgage to raise capital to continue or expand your business, contact the experts at MAE Capital.
Professionals You May Need Other Than Movers
While you are getting your movers scheduled, consider other types of professionals you may need to use. For example, if you have fragile or specialty items to move, such as musical instruments, pool tables, fine art or firearms, you may need to hire a specialty mover. It may also be helpful to engage the services of a real estate agent, find a new veterinarian and establish with a new primary care doctor.
What Could Go Wrong
Make a list of the various problems you could encounter during your move and brainstorm ways to overcome them. For example, what happens if the closing date on your existing home happens before the move-in date on your new home? Also, if your job doesn’t end up being what you thought it was and you have to go back on the market, don’t panic. You can give yourself an edge over the competition if you take advantage of free resume templates to highlight your skills as professionally as possible.
Six Weeks to Moving Day
This is the phase where you transition from planning things to doing things. Start organizing your stuff for the move. Acquire moving boxes and start labeling them. Get your vehicles serviced. Start packing a small amount each day.
Four Weeks to Moving Day
Donate or discard items you can't move or sell, such as frozen foods. Get your important documents together. Contact utility providers. Get ID tags for pets.
Two Weeks to Moving Day
Wrap up loose ends, such as using up your perishable food, during this period. Make arrangements for a safe place for your pets and kids to be during the move.
Your list will likely change and grow, meaning you might end up with more tasks. However, you can use this example to help you organize your move into more manageable chunks. Remember to stay calm. The process can be stressful, but it’s also a great chance to embark on an exciting new chapter of your life!
MAE Capital is a unique Brokerage firm born from the changing Real Estate and Mortgage Industry. Our operating model exemplifies a forward-thinking approach to the Mortgage and Real Estate Industry as a whole, which we apply to the benefit of our clients. Call (916) 672-6130.
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I am going to start this by stating that this is not meant to be political but it sure is going to sound that way after I give a true and accurate accounting of what will happen economically to the US if this Student loan forgiveness is allowed to go through. I will not even get into the extreme unfairness this is and the blatant attempt to get votes this is, that would not be productive to the economics of this. We are going to explore history, and what happened in the past when the Government tries to spend it’s way out of inflation and a recession.
It appears the current administration believes that the value of the dollar will not decline if they put more dollars into the economy. That is like saying if I gave you more money what would you do with it? Then give everyone more money and ask what they are going to do with it. You would be right if you said they are going to buy things with the money, cars, houses, clothes, vacations, electronics, etc.. Logically, you can say if more people are buying more things and those things are in high demand the price of those things will go up. This is called inflation. Inflation happens when more people want the same things and the supply can’t keep up with it. If you forgive someone’s debt it is like giving them a raise, they will have more money every month to spend if they are not spending the money on the debt they owe because the government paid it off.
As you ponder that basic economic theory, let’s look at the effect on the value of the dollar worldwide and how that will affect you here in America. So, our government gives its citizens money, and in this case to pay off debt. By doing so they put more US dollars into circulation and that will devalue the dollar worldwide. Why? Simple the more of anything everyone has the less value it will have. For example, if I produce a specific widget and I have more than I can sell I will have to lower the price of the widget to sell them. The same holds true with the dollar, the more US dollars that are out in the world the less value they have to other countries. If other countries, see our dollar as plentiful or in oversupply then they will ask for more dollars when they sell stuff to the US thus inflation. This type of economics is called Keynesian Economics and in the history of the world this has never worked, kind of like socialism has never worked, I digressed.
I told you I would not get into politics here so I will give you the facts and you can do what you want with the information. Keynesian economics is a tax and spend way of running a monetary policy. Yes, after the spending will come the taxation, it is inevitable and already shown by the government wants to hire 87,000 new armed IRS agents. It doesn’t take much of an economic mind to see what our government is trying to do. When you couple the climate change agenda with all this and the slowing of domestic oil production you are staring at an economic disaster. The people it will hurt the most are those older folks that have saved for retirement all their lives to see it all erode away with poor government money management.
Again, trying not to be political here, but I am 59 years old and have seen this disastrous mindset in the early to late 1970s. Back then the monetary policy was very similar to today’s tax and spend mentality. Where that ended up was high inflation and high-interest rates which was called stagflation (a stagnant economy with high inflation). I started in the mortgage business in 1982 and mortgage interest rates at the time were hovering around 18-20% for a fixed rate loan for 30 years. We have just seen mortgage rates jump from the start of the year (2022) when they were at a nice 3-4% to a staggering 5-6% with no end in sight for how they will go. The Federal Reserve (for those that don’t know is not part of the Federal Government they are a Central Bank that other banks use), has vowed to continue to raise interest rates until inflation gets back down to 2%. Anyone can see that under this tax and spend regime we will never get there, so interest rates will continue to rise. If you go back to my previous posts from last year you will see how correct I have been in my predictions.
You might be making more money now at your job and that is great but now if the government cut your expenses more than half you would have even more money to spend. Initially, you think this is a great deal but eventually, you will have to pay for it and in the end, you will be paying a lot more than the short-term relief you got. It is simply the price of everything that went up and so has your tax obligation. The more money you make the more you pay in taxes. Next, the Government will raise your tax rate to cover the short-term benefit of getting your student loans paid off, and over your working life, you are paying more in taxes than the student loan was by about 10-fold. So not to be political, but would you rather pay fewer taxes and have more freedom to open a business and not worry about the government coming after you, or would you rather pay more taxes and see the government pay for people that have not contributed to our economy in any way or send money overseas? Or simply put would you like to put your neighbor’s kid through college or your own kid? If you are close to retirement and you have saved all your life for retirement, would you like to see the government tax your retirement away to pay for people you don’t know and suffer because of it? If you are a first-time home buyer, would you rather pay a 3% interest rate or a 6% interest rate and be taxed on your income at a higher rate? If you said yes to any of the above then your wish has been granted by this administration. Again not being political, I can’t stand back without informing those that have not had the benefit of a good education to fully understand the principle here. You can probably tell I don't like the idea of paying off student debt or any frivolous government spending that appears to be only for getting votes at the expense of every American.
Has the Federal Reserve Board gone too far with raising Interest Rates? The Federal Reserve raises interest rates to combat inflation. Yes, we have high inflation, but has it been caused by high demand for goods and services or is it normal demand with a diminishing supply of goods? This question is not a question the Federal Reserve (the Fed) has not addressed properly as when inflation started to be seen the Fed initially called it “Transitory” meaning short term, turns out they were wrong. So now after the Fed realizes their mistake, they are raising interest rates at a far faster rate than they would have normally.
When the Fed raises interest rates, they only control one rate which is the Federal Funds Rate or the rate at which banks can borrow from the Fed. The Banks, in turn, raise their prime lending rate to the public which affects business loans, Home Equity Lines of Credit, but not the interest rates for your typical home loans. The reason home loan rates increase or decrease when the Fed raises rates is the fact the home loan rates are driven by the FNMA, FHLMC, and GNMA and the bonds that are spun off of those securities. Wall Street will actually set the rates based on a perception of what will happen as a result of the Fed raising its interest rate. There is another factor at play here that needs to be addressed and that is the fact that the Fed has been buying mortgage securities since the pandemic started and now they are selling their holdings off reducing the “balance sheet” as some of you may have heard.
The Fed is raising interest rates to slow down the economy in the hopes that the demand side of the economy will slow due to the higher interest rates thus slowing the demand to borrow money and expand. This philosophy is fine and works if both sides of the demand and supply curve are addressed. The problem I see here is that the Fed is overreacting to situations they can’t control. The Fed has no way of controlling the supply of goods and services they only can control the demand side. The problem with this philosophy in this economy is that I see normal demand with a shortening supply of goods and services. So, by trying to slow demand they are missing the fundamental problem and that is the supply side of the equation. We all have heard about China and its lockdowns over the last several months. This is causing a supply shortage of consumer goods, auto parts, microchips, clothes, and retail goods. The Fed can’t control the loss of these goods in our supply chain they are simply making it harder for American businesses to catch up to the loss of goods coming from overseas.
As the Fed tries to fight inflation by raising the rates and ignoring the supply side we will see a recession in the near future as the economy will have to pay so much more for the money that is needed to expand American Business. Oil prices are also a major factor in the inflation equation as we can all see at the pump. The Fed can’t control the demand for oil by raising interest rates, so as prices for oil continue to rise so will the price of goods and services until the price of oil is addressed by increasing supply or at least showing the American people that the government is working on freeing up resources to increase supply inflation will continue. As inflation soars and the Government doesn’t address the supply side of anything we will continue to see inflation and eventually with rates rising so high we will see an economy stagnate to the point where there is no possibility of expanding the economy with high rates to borrow money. This is called stagflation and I would argue we have been in this state for some months now with it worsening every day.
On the Real Estate and Mortgage side of rising interest rates, the signs will be obvious. As interest rates rise the affordability of homes will diminish even further. As demand for Real Estate dries up due to high-interest rates you will see the demand for home goods diminish as well. As the demand for money drops off with the high rates mortgage companies will be laying off workers and so will home improvement stores, home builders, and appliance stores. This ripple effect will cause other industries to have to lay off workers and the economy will slow so fast that you will have high prices for gas, food, and all services that revolve around them. Eventually, the prices of homes will go down due to high-interest rates and people out of work not being able to afford a home. I don’t want to scare people, but the government has been out of control of the economy for over a year now and it is showing and will continue to decline if logical decisions are not made. My fear is that what should be done and what is being done is all somehow politically motivated. Janet Yellen, the secretary of the Treasury of the United States, admitted that she made a mistake with inflation by not raising rates soon enough. Now fast forward to today the Chairman of the Fed Jerome Powell is glossing over the supply side of the equation for some reason and that should scare you as that is the core problem with inflation, not the demand side. So, I see the Fed raising rates to where we see a deep recession with mass layoffs on the horizon if they don’t stop with the interest rates and move to the supply side. Again, politics get in the way with this as the current administration is responsible for the price of oil as they have shut off possibilities of America producing more thus having to look to foreign sources of oil. Although this may look grim we are all Americans and we will persevere and prosper. To counteract rising interest rates look for new innovative home loan programs coming soon to help those get into homes in a changing world.
Tips for Moving to Another State While Starting a New Business
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MAE Capital Mortgage is a Brokerage firm that uniquely blends mortgage and real estate services to give you as many resources as possible to get you in the home of your dreams. Connect with us today by calling (916) 672-6130!
Are you considering a move to another state? If so, you're not alone. According to the U.S. Census Bureau, over 27 million Americans relocated in 2021. While moving can be an exciting adventure, it can also be daunting — especially if you're starting a business in your new location. Here are some tips from MAE Capital Mortgage for a successful move.
Find Neighborhoods in Your New Location
When you're ready to look for a place to live, it's essential to do your research. Consider neighborhoods in your new location and what type of housing is available. If you're moving to Sacramento, CA, for instance, check out Historic Chinatown and Discovery Park.
Secure a Job in Your New Location
Job hunting in a new city can be challenging, but there are a few things you can do to increase your chances of success. Start by researching the job market in your new location and identifying hiring companies. Update your resume and cover letter to reflect your qualifications and what you can offer potential employers.
If the move involves either relocating a business that you currently run or plans for launching a new venture, you’ll want to make sure that all your tech needs are covered, ideally before moving day. Using software that’s based in the cloud is your best-case scenario, as you’ll be able to access and use mission-critical apps on the fly. For example, you can get payroll services processed quickly with online payroll software that allows you to pay your employees on time and with direct deposit to avoid having to print checks. You can also rest assured that your tax liabilities stay in check, as such software calculates and pays payroll taxes automatically.
Know the Cost of Living in Your New Location
One of the most important factors to consider when moving to a new location is the cost of living. In Sacramento, the cost of living is relatively affordable. Sperling’s Best Places notes that the median home price is $435,600 and the median rent is $1,556 for a two-bedroom. The cost of groceries and utilities is also relatively low.
The area has many free or low-cost attractions, such as the historic “Old Sacramento” riverfront downtown area. Also, the warm weather makes it perfect for outdoor activities year-round, including at nearby Lake Tahoe.
Do you have children? Sacramento County has some excellent public schools and several private schools. Colleges include Sacramento State (California State University, Sacramento), the University of California, the Los Rios Community College District, and the University of the Pacific.
Purchase a Home in Your New Location
If you're planning on purchasing a home in your new location, it's essential to be aware of the different mortgages available. Talk to a local lender about your options, and compare interest rates. It's also good to get pre-approved for a loan before you start looking.
Adjust to Your New Location
Moving to a new location can be overwhelming, but there are a few things you can do to ease the transition. Make sure you're familiar with the area and have a good map of your new neighborhood. Get to know your neighbors and introduce yourself to the community.
Start a Business Plan, Including Creating a Logo
If you're thinking about starting your own business, it's crucial to create a formal plan to have a road map for where you want to take your company. Your plan should include information on your target market, your product or service, how you'll reach your customers, financial projections, and funding.
It should also have a marketing strategy, an important part of which is a stand-out logo that will help you create a memorable brand. Money is usually tight during the startup phase; fortunately, you can generate a logo online for free that will help you create a professional logo that pushes your messaging and identity in just a few straightforward steps.
With these items in place, a well-crafted business plan can give you a better chance of success as you start your new venture.
Moving to Another State With Ease and Confidence
Moving to another state can be an exciting and challenging adventure. The right plan – which includes aspects like securing financing, using online payroll services, and drafting a business plan with a marketing strategy that should include creating a logo – can ensure everything comes together. For help finding financing for your dream home, contact MAE Capital Mortgage, where real estate meets mortgage!
MAE Capital Thanks Suzie Wilson for authoring this article
photo via Pexels
Debt Management Tips for First-Time Home Buyers
Are you planning on buying a home within the next year? Now is the time to start managing any existing debt so you can improve your debt-to-income ratio and boost your credit score. While you don’t have to pay off all of your debt before buying a home, do what you can to get your financial house in order before taking on more debt. The last thing you want is to become house poor! Here are some debt-management tips to help you prepare for a home purchase in the next 6-12 months.
Home Buying Steps for Business Owners
If you own your own business, you may have to take some extra steps as you prepare to buy a home. For example, consider forming an LLC to protect your personal assets from business-related debts or lawsuits. This will keep your new home safe from creditors! LLCs also enjoy tax advantages and management flexibility that can make it easier to grow your company. Plus, when you file an LLC, your business will seem more credible to mortgage lenders when it comes time to buy your new home. Check specific state regulations around forming an LLC so you know what to expect.
Cut Your Spending
If you want to pay off a lot of debt quickly, one of the first things you should do is reduce your spending. MoneyUnder30 recommends against creating a strict household budget and tracking every dollar you spend. Instead, set up a system that tracks all of your spending automatically, like using a single debit or credit card for everything.
Consider allocating yourself some money to spend on personal expenses, like a dinner out or a new clothing item. For example, you could set aside just $100 a month to spend on treats for yourself. Rewarding yourself for your spending cuts is a great way to maintain your motivation.
Make a Debt Reduction Plan
People use all kinds of different methods to pay off debt. Look into your options and choose a debt repayment method that will work best for you. For example, you could start by paying off either your smallest loan amount or your debt with the highest interest rate. These methods are known as the debt snowball and debt avalanche, respectively. Both of these methods can boost your confidence and increase your sense of control over your debt, encouraging you to continue down the same path.
Transfer Your Debt
If you’re paying a lot of interest on your debt, consider transferring your remaining balance to a line of credit with a lower interest rate. This will make it easier to pay down your debt. For example, you’ll typically pay a much lower interest rate for a line of credit than for a credit card or personal loan. A line of credit can also be useful for consolidating several loans into one. Just use the money from your line of credit to pay off all of your other debts, then you only have to focus on making one loan payment each month.
Land a Side Gig
Bringing in some extra income will help you pay off debt more quickly. Consider picking up a side gig for a little while until you’re happier with your debt situation. Look for a part-time job in town, drive for ride-sharing companies in your free time, or offer professional services remotely on a freelance basis. There are countless ways to make money on the side of your full-time job!
If you’re planning to buy a home within the next year, start preparing your finances now. Don’t let your existing debt get in the way of your homeownership goals! Make a plan to start paying down your debt now so you can feel confident in your decision to become a homeowner in the near future.
Are you looking for your dream home? MAE Capital Real Estate and Loan can help you find an affordable mortgage! Call today so we can discuss you
Article was written by: Suzie Wilson
It wasn’t too long ago that we were looking at multiple offers on million-dollar homes and fights erupting on homes in the affordability range. This was just in March of this year. We are looking at something dramatically different now with interest rates driving the changes. Those million-dollar homes are now sitting on the market longer and we are now seeing price reductions in that price range. While in the affordability range we are seeing the demand get sucked up quickly and houses are coming on the market at a much faster rate.
I will start with the analysis on the upper end of the market, those million dollars plus homes. I now can say without a doubt that the top of the Real Estate Market was March of this year. Since then, interest rates have risen above 5% which alone has slowed the market. In March of this year, you could still get a home loan with an interest rate in the 3’s, and now with rates in the 5’s that has cut the purchasing power of potential home buyers by a lot. What we have seen is that people were qualified back in March for one loan amount and didn’t realize that rates have risen as much as they did and while they were not looking they no longer qualified for the homes that were in their price range. Watching the Multiple Listing Service or MLS we are seeing more properties that were in pending status come back on the market with no fault of the seller but turns out buyers no longer qualify with the higher rates.
In the affordability range (here in California) is between $450,000-$650,000 we have seen more homes hit the market in the last several weeks. As potential home sellers realize that the top of the market has come and gone they are now putting their homes on the market. I believe that potential sellers have waited to market their homes until the top of the market and now that we are there, they are all putting their houses on the market at the same time. This is great news for potential home buyers that have been beaten out of the Real Estate market and decided to sit on the fence until this very thing happens. Demand will quickly be eaten up and inventory will continue to rise. As interest rates continue to rise this will cut a significant amount of potential home buyers from the market. So, if you fall into this price range of home buyer then I believe it won’t be long before we enter a buyer’s market.
As interest rates rise and inventory rises, prices will have to soften a bit to get buyers to buy. In addition to that, those sellers will be making concessions to get potential buyers to buy their home. A sales concession is when a seller pays for pest work to be done, the buyer’s closing costs, and other things to entice a potential home buyer to buy their home. This is what is commonly referred to as a buyer’s market. This will occur once the pent-up demand slows down and interest rates price home buyers from the market. This is not something we like to see; however, I believe this will not cause a manic sell-off as we saw in 2008 through 2011. The reason is simple we don’t have a money crunch like the last Real Estate correction. Money is still available but at a much higher rate and we have relatively full employment, and we are not seeing mass lay-offs as we saw during the recession of 2008-2011. This is not to say that it still can’t happen. The way this would happen is if the Federal Reserve continued to raise Interest Rates past the equilibrium point which is where we could be today.
If you are a home buyer today my advice would be to buy as soon as you can as interest rates will continue to rise. At MAE Capital Mortgage we have a “Lock and Shop” option for home buyers. The “Lock and Shop” is once we have you approved for a loan amount, we can lock in today’s interest rates. The lock period could be up to 180 days to give you the opportunity to look for the right home or if you are having a new home built it will allow time for the build. Doing this will cost you a little more than if you were to have a home a lock your rate for 30-60 days, but in a rising interest rate market, it could save you hundreds on your monthly payment. We are at a rare place in history where the Federal Reserve has already told us that they will have 2-3 more rate changes this year alone. That said the “Lock and Shop” option offered by MAE Capital Mortgage Inc. is an easy choice to do if you are shopping for a home to buy in the next few months.
If you are a Potential seller in this market, know where your house falls in the affordability range. The higher the value of your home the more difficult it is going to be to sell your home. If you are considering selling your home in the next 6 months now should be the time to get your home on the market to get the very best price. My advice would be to talk with a MAE Capital Real Estate Agent about getting your home on the market and devise a strategy with them to get the highest and best price for your home. Here at MAE Capital, we are no strangers to changing Real Estate Markets and how to market to the changes our Agents are seasoned pros and our newer agents have the energy and mentors to get you the very best price for your home. We also have a bundling program that when you list, sell and buy your next home with us and use our mortgage options we will buy your interest rate down so you have a lower than market interest rate thus a lower payment as our realtors will put some commission towards your closing costs on the new loan. This program is great and is not offered by any other Real Estate firm.
If you are considering buying or selling now would be the time to get on it. I can say that next month the Interest rates will be higher, and so will gas prices, and food prices. Inflation is here to stay for a while and the Federal Reserve has said they will be continuing to raise rates, we know that gas prices will continue to rise until we either produce more domestically or cut our demand, which is not possible. We also need to keep a watchful eye over geopolitical events as they could cause even more problems to our economy. We are living in a very unique time with a very unstable economy, high gas prices, high inflation, and a government that wants to spend more money and raise the minimum wage, and raise taxes, all of which will cause even more inflation.
MAE Capital Real Estate and Loan’s operating model exemplifies a forward-thinking approach to the Mortgage and Real Estate Industry as a whole, which we apply to the benefit of our clients. Reach out for more info today! (916) 672-6130
Your Guide to Getting the Best Deal on Your Home
Whether it’s your starter home or forever home, you deserve to get the best deal possible. This guide from MAE Capital Real Estate and Loan looks at the pros and cons associated with buying either type of home, as well as important considerations to take into account.
Starter Home or Forever Home?
If you’re a first-time homebuyer, the decision to buy a starter or forever home can be difficult. As you weigh your options, there are many factors to consider. The most important is your future plans and how much space you’ll need in the next few years.
Should You Rent?
When deciding whether to buy a starter home or a forever home, you should also consider the possibility of renting. While this is not always an option, Money Management International notes that it may be a solution for those who don’t have the money saved up or have bad credit.
Considerations Before Buying Your First Home
Ramsey Solutions points out that if you are looking for your first home, then you need to ask yourself a few important things, such as, am I ready to buy a starter or forever house?
You should take into consideration your future plans, the location, and the price. Are you looking to settle down in one place, or do you want to keep moving around? What is your budget like?
The pros of buying a starter home include affordability, less upkeep, and the possibility to earn future income (i.e., renting it out). The cons of buying a starter home include smaller size, the possibility of needing repairs, and typically more difficult to sell.
What to Consider When Buying a Starter or Forever Home
Before deciding whether to purchase a more affordable starter home or your forever home, there are a few things you need to consider.
The first is the size of the home. Starter homes are smaller and do not typically have as many amenities as a forever home. For example, if you have a growing family, starter homes may not be the best choice for you.
The second consideration is how much upkeep will be required from homeownership. Finances and time constraints should also be considered when purchasing a starter or forever home. Another factor is purchasing a home warranty, which will help offset any costs for minor or major repairs down the road. So if you're looking for the best home warranty company you’ll want to start your research right away. At MAE Capital Real Estate and Loan, we will pay for your home warranty if you use one of our buyer’s Agents to help you find the perfect home and the warranty for peace of mind. You’ll also need to be prepared to put in the work needed to maintain your property? Once these decisions are made, it’s time to decide which type of property meets your needs!
The pros of buying a forever home include putting down roots, you won’t have to move again, and they’re a larger size so you can grow your family. The cons of buying a forever home include a higher cost and more upkeep.
As you can see, you have a lot to think about as you compare the pros and cons of starter homes and forever homes. Depending on your current financial situation, it might make more sense to go with a starter home initially and then work your way into a forever home.
MAE Capital Real Estate andLoan can help you make the best decision based on your needs. Bundle Your Real Estate services with allowing MAE Capital Real Estate and Loan and save thousands of dollars and get a lower than market interest rate thus a lower mortgage monthly mortgage payment. We look forward to helping you with all of Your Real Estate needs.
Authored by Suzie Wilson
As we all know we are in an inflationary economy currently. The Federal Reserve is now tasked with raising interest rates to slow down the demand side of the Demand and supply curve. The problem with this approach is that sure we have demand for goods and services, however, what they are missing and have no real control over is the supply of goods coming from other countries that we have grown dependent on. As you can see from the chart below when the supply is low prices go up to meet the demand curve for those goods and if supply is too high prices have to go down to suck up the excess supply. This is basic economics, and all theories of an economy are based on this curve. Some politicians pervert this curve by thinking that they can control it through regulations and monetary policy when in fact it is driven by people and every good and service has it’s own curve so trying to analyze the entire economy based on Demand and Supply you have to look at where the supply of the goods are coming from before addressing the demand side. This is a fundamental mistake I see the Federal Reserve taking in our current economic situation.
The Federal Reserve can’t control the supply side of the economy, even though they truly believe that it can. What I mean is that the Fed believes that by raising interest rates they will slow the demand so that supply can catch up to demand. What this ends up doing is creating a very long time lag and by the time supply catches up with demand the Fed has gone way too far in raising rates and has stagnated the economy by keeping rates too high for too long and slowing the market to a recession. This is a dance that the Federal Reserve has been doing for decades since the Allen Greenspan era under Ronald Reagan and George Bush Senior’s years or the early 1980s to the early 1990s to the present day. The difference between now and then is the simple fact that the economy has gone mostly global instead of America being predominant.
The question is here how do we increase the supply of goods and services and housing without overrunning interest rates? This is a question I am sure the Federal Reserve has been pondering also for decades. In my opinion, the supply side of the above curve is what needs to be addressed and I do think Interest rates need to go up to curb demand, however, especially in housing, rising interest rates past the equilibrium point is counterproductive in the long run. Simply put housing should be left to flourish so that builders are incented to build. If interest rates are too high and supply catches up you end up with people that can’t afford to buy the entry-level home. Currently, we have people sitting on the sideline of the real estate market waiting for prices to come back to an affordable range so they can buy. This is called pent-up demand. With Pent-up demand in housing by raising interest rates too high you end up with demand but no ability to act on the demand, thus stagnating the housing market even further. On the supply side of the housing market, you have potential Real Estate Sellers not wanting to sell if the house is going to be worth significantly more in the upcoming months you end up with no inventory. So, the question should be is how to entice those potential sellers of Real Estate to sell their homes? The answer to that is simple if a seller believes that the Real Estate Market has topped out then you will see people putting homes on the market. This has already started on the high end of the market and is working its way to the middle of the market where the affordability range is.
As the word gets out to more Realtors and potential Real Estate Sellers you are going to see inventory begin to rise. While builders are building as fast as they can that too will increase the supply of housing. I truly believe that the equilibrium point for interest rates should be in the 5.5%-6.5% range for a 30-year fixed rate home loan, If the Fed pushes rates even higher you will see an almost sudden increase in the supply of housing. If this happens too fast you will see an increase in inventory as well as prices being forced to go down to allow for people to afford homes with the higher interest rates. Going back the above to the Demand and Supply chart you can see with an increase in supply, past the equilibrium point that prices have to fall to the equilibrium point. This is about as basic of an explanation as I can give and in a true market without government intervention as the economic concept of Supply and Demand works every time.
That is a good representation of the housing markets but what about the rest of the economy? What we have in the U.S. economy on a macro level is a bit more convoluted. As the Federal Reserve raises rates, they are also hoping to slow the demand for all goods and services like cars, trucks, heavy machines, and as companies that need to expand their production obtain loans for expansion, it will cost more to more every month for them to do so. As the costs to run a business increase then that increased cost will be put on to the consumer to pay for in form of higher prices for those services. Add in the high price of oil and everything that runs on oil or is manufactured with oil and as those prices continue to climb you can have a recipe for disaster. Oil is the wild card that the Federal Reserve can’t control. Therefore, the Fed has to be very cautious when raising rates as if they go too far too fast then that could very easily put the economy into a recession which is what I see happening by the end of the year or beginning of 2023. So, if you watch the markets and you look around at what you and your neighbors are doing you will probably be able to see the future by your own actions unless the government does something stupid.
As I write this blog, it really helps to have some years lived under my belt. Although I was only 9 in 1972, I was there and can remember the gas lines and high-interest rates. The reason why this is important is that history has a way of repeating itself no matter how hard people try to erase it. Regardless, you are here to read about where interest rates are headed and maybe even oil prices. As I write this blog Russia is in the process of invading Ukraine. Russia is one of the largest producers of oil in the world currently and the United States gets about 1/3 of its oil from Russia and Europe gets about 50% of its oil from Russia. Currently, the US and Europe have imposed sanctions on Russia that is basically crippling their economy except for the oil the world is purchasing from them. As Russia’s currency and banking system is being crushed by the sanctions, the oil is still flowing out of Russia to Europe and the US to the tune of 100 million barrels a day and at $100.00 a barrel (the current price of oil) Russia, especially Putin, are still making money every day. At some point, either Europe and the US will stop buying the oil and financing the war, or Russia will turn it off and choke Europe with gas prices so high it will cripple the European economy and will hurt the US economy.
This should be opening our eyes to the severity of this conflict, not to mention Putin has put his nuclear arsenal on the ready. So, what will happen to interest rates here at home? This question has to be answered with a history lesson. First, let's look at where we were before Russia invaded Ukraine. Here in the US, we were seeing a high inflation number (6%) before the invasion, and this was due to many factors but going to core economics we were seeing a high demand for goods and services and a diminished supply of goods and services which caused prices to go up. That is simple economics, now add a war where the supply of oil will be diminished so the price of fuel will be higher. The goods being delivered to our stores will cost significantly more to get them there so the price of those goods will have to go up to compensate for the delivery charges. Here is where history comes in, as in the past Interest Rates have been raised to slow the demand for goods and services thus slowing down a heated economy. In our current situation, we have high demand, high prices, and high inflation with a short-term outlook for even higher costs as delivery costs rise with the price of oil increases.
In 1972 we had rising costs and an oil supply shortage that caused higher delivery costs with no war. By the end of the 1970’s we also had interest rates for home loans that got as high as 20%. What we also had during the 1970s was an expanding economy with high demand for labor. Remember, there were no computers back then, so everything was done by humans, so you had to pay good wages to get good humans to work for you, so we had wage inflation that kept up with the inflation of the time. Sound familiar, it should as currently we have a high demand for labor, and we have wage inflation. So, if history repeats itself, we should have high-interest rates. The wild card here is the war. If we get involved with the war our economy will heat up even more, but what we have going for us is the fact that the US Dollar is currently the world currency giving the US a stronghold. This could change if China and Russia joined forces, a discussion our leaders.
Why then are interest rates relatively stable in today’s world in the low range and what will happen to rates with war and then without a war? Let’s break this down and use history to help us. If Russian oil is cut off, we will have higher prices across the board which is inflation, but will the Federal Reserve (the Fed) raise interest rates to slow down the economy? My belief is that the Fed will have to raise interest rates to curb demand, however, they will have to be very careful not to mix up demand inflation for goods and services to the abnormal price increases of oil. The Fed will be tasked with separating consumer demand for goods and services that is normal to the price increase of oil. The price of oil increasing is not a function of demand for it, it is a supply-side issue that will have to be calculated. As I write this blog the stock market is going down and interest rates are lowering a bit. The reason for interest rates going down short-term is due to a flight to quality where when the Stock market falls rapidly stock traders move away from highly volatile stocks to the steadiness of US Treasury Bonds. As the demand for steady interest rates bonds increase the price of those bonds increases thus lowering interest rates in the short term. In the past, the Fed has raised interest rates to slow down the economy to curb inflation. What we have currently is a slow economy with high demand and high inflation or as they called in the 1970’s Stagflation.
History has shown that war brings nations out of situations like this. This war is like nothing I have seen in my life where you have a superpower (Russia) being an aggressor. The only historical time that can be looked at is Germany in the late 1930s when they were severely depressed coming out of the loss of World War 1. Germany stimulated their economy by starting up its war machine and WWII was started and pulled the entire world out of a depression. I can only hope that the current actions of Russia don't start WWIII. In the meantime, we can only pray that this situation does not escalate even further, but if it does God help us. Assuming this goes on for a while and oil is choked off from Russia we will have higher prices for all goods and services and in order to slow demand will be to raise interest rates. If the war ends and the oil continues to flow, then we still have pent-up demand and inflation. The Fed will have to raise interest rates to offset this. The dance is going to be where the right interest rate point is that keeps the economy moving at a sustainable rate without run-away inflation or stagnating the economy. This is no easy task for the Fed as there is no real point in history where we have had all of these factors at once. My belief is that we will see higher interest rates due to the demand factors seen prior to the war with Russia and Ukraine. I believe interest rates for home loans will equalize around 5-6% by the end of all this without full-on WW3. We have to be positive with regards to war as not only do we have to watch Russia, but China is also looming out there and that scares me more than Russia as they are closer to the West coast of the US than Russia. In conclusion, I see the underlying economy in the US as heating up without our involvement in a war, if we get involved demand for labor will go up significantly and so will wage inflation to attract workers to build aircraft, munitions, and military items. The Fed will have an almost impossible task if that is the case. If we can stay out of war and we go back to what was happening in the economy prior to the conflict the Fed will have to raise interest rates until supply catches up with demand. In these uncertain times, there is no right answer we have to look at history to see where we are headed and most importantly as Americans we need to stick together.
As we wind down 2021 we are still in a pandemic era with uncertain times ahead. From an economic viewpoint, we currently are under a low-interest-rate environment with high inflation (6.2%). Before the pandemic, this would be an easy fix with the Federal Reserve (the Fed) raising interest rates to combat higher prices. Under the pandemic era, things seem to be working in opposite directions from an economic approach as there is an uncertainty of new COVID variants coming out and the Government overreacting to them by shutting the economy down again. With higher interest rates you will see a slowing in the housing markets as fewer people will be able to qualify for the already high prices of homes. This brings up a question of right or wrong to raise interest rates and should the Fed raise them now or later?
To see the future, we have to look to the past in how the economy works. Contrary to some trains of thought the economy is consumer-based, meaning that the consumer is driving what the Federal Reserve does not the other way around. What we have seen from the past is that the Fed has bought Mortgage-Backed Securities (MBS’s) starting in 2008 to help recapitalize the housing industry. This means that as the Fed buys MBS’s mortgage companies have the ability to sell their mortgages to them freeing lenders up to lend more, in simple terms. So as the Fed buys fewer Mortgage assets the ability to sell mortgages to them becomes tighter thus forcing lenders to raise their rates to slow the number of loans they take in. This is what “tapering” is as you hear this on the news channels. So, the Fed announced that they are going to taper their buying of these MBS’s at a pace twice of what they said back in November so lenders will generally have to raise their rates to slow the number of loans coming in so they can inevitably sell to recapitalize so they can lend more. I know these concepts are confusing but this is what it all means as you hear financial people talk about “tapering”.
The other area of which the Federal Reserve controls to slow inflation is to raise their funds' rate. The Fed Funds Rate is the rate at which banks can borrow money from the Federal Reserve. We learned that the Fed is not planning on raising this rate this month but plans to through 2022. What this means is that the banks will be able to borrow at 0% still from the Fed making banks ability lend stay at the status quo. This begs to question with a 6.2% inflation number currently and the Fed’s goal of 2% inflation is not raising the Fed Funds Rate going to cause inflation to continue to rise? Time will tell, but one thing out of all of this is for sure is that interest rates must go up it’s just when and how fast. Is the Fed going too slow or not aggressive enough in the fight against inflation? This is the question up for discussion and time will tell. From my perspective, I would say they are moving too slow and will have to be more aggressive in raising interest rates in 2022.
Why do I think that rates will have to go up significantly in 2022? I see many factors here that the Fed has glossed over that will keep prices going up into 2022. The major factor the Fed glossed over is wage inflation. Wage inflation is a good thing for those working folks, however, if inflation rises faster than wages then workers are worse off than before even making more money. One of the factors that I believe the Fed is missing in their outlook is that the continued demand for goods and services is going to continue to rise into 2022 at a faster rate than they think. The Fed believes that inflation is, in the most part, due to lack of supply or goods being hung up at the ports and not making it to consumers as fast as demand wants it. I believe that the demand will continue beyond the current supply issues into other supply issues into 2022. This means that once the ports catch up with the goods coming into the US the demand will still exceed supply thus the continued inflationary trends. Once this is realized in interest rates will have to go up to slow demand and could rise far faster than people have seen before. The longer the interest rates are held low the faster they will have to rise to offset inflation.
So now that we see interests going up what does that mean for Real Estate? In a higher interest rate environment, fewer people will be able to qualify for homes. For example: If you qualify for a $400,000 loan at an interest rate of 3% if the rate moves to 4% now you may only qualify for a $350,000 home loan. The same concept flows over to people buying cars and trucks and companies that buy heavy equipment. Couple this with an “Infrastructure Bill” that is poised to go through congress, the demand for these goods will be on the upside further pushing inflation. So as the Fed thinks that inflation will calm down on its own, I believe with the Government spending more and more money that inflation will continue to rise so interest rates will have to as well.
In Conclusion, I see the Real Estate market tapering, so to speak, with interest rates on the rise. There will be continued demand for housing, but fewer people will be able to afford housing. Housing prices will stabilize in 2022 and if inflation is left untouched or not acted upon aggressively you will see housing prices go down if interest rates are forced to go up at a faster pace than everyone is anticipating today. Housing itself has been a major cause of inflation and that is not generally looked at by the Fed as a major problem, but, as housing prices rise the perceived wealth of people increases and they have taken out equity due to this. When reality is that the increases in housing prices are the precursor to all price increases except for the price of oil. Simply put, when people have seen their equity in their homes rise, they tend to take it out for home improvements and the purchase of other goods and services and that is what we have seen over the last few years. So as home prices stabilize, and interest rates go up the demand to take equity from their homes decreases thus the demand for goods and services will also decrease. Another factor that is missing in all of this is the price of fuel. If the price of fuel continues to go up, then it will cost farmers more to bring food to market so we will see continuing inflation in the food sector if prices of oil are not contained. So, with certainty, we can say that interest rates will be on the rise through 2022 and it looks like wages will continue to increase as there is more demand for labor than there is the supply of it currently. Home Prices will stabilize and move lower if interest rates go up too high. If you are looking to buy a home in 2022 it could be a great time to buy as demand slows down and prices may adjust down a bit. Interest rates may be a bit higher but if you can qualify go for it. You can never go wrong owning Real Estate especially your primary home.
The first thing everyone who is considering using Private Money otherwise known as Hard Money loans to fund Real Estate is that these loans are primarily for Investment property. People ask; “why not help fund owner-occupied property with poor credit?”. The answer is that the current lending laws with regards to Qualified Mortgages have many limitations and disclosure requirements. A Qualified Mortgage is a mortgage used for owner-occupied 1-4 family homes. Usually, Qualified Mortgages are sold to FNMA or FHLMC which have stringent lending requirements. Private Money loans, on the other hand, are from private individuals, and retirement funds of those investors, and they are more interested in the equity in any piece of Real Estate than the qualifications of the borrower. The thought is, if a borrower is going to put down 30% or more of the purchase price, they are not likely to walk away from that investment, so they tend to make the payments even when the rates are high.
Private money/ Hard Money can be used to fund residential property, raw land, commercial property, Commercial land, construction, mixed-use properties, warehouses, Agricultural land, and more. Each investor or the people with the money to lend generally have an appetite for a specific type of property they feel most comfortable lending on with their money. As a Mortgage Broker, MAE Capital Mortgage has many different investors with different appetites for different types of property. It is our job to match up the investor with the borrower and make sure that both investor and borrower know what they are getting into before a deal is struck. MAE Capital Mortgage will do the legal paperwork to keep both the investor and the borrower informed as to the terms of the financing prior to funding an investor’s money.
When would you use Private/ Hard Money to purchase Real Estate? The best answer to that would be when a borrower doesn’t qualify for traditional financing. Most folks that utilize Private funds for their project generally the borrower or the property has issues that a traditional lender will not lend on. A borrower may have poor credit with a large down payment thus not qualifying him or her for traditional financing. This is where a private investor comes in. A Private investor will lend to a borrower regardless of their credit score if they feel the equity is there, in case of a foreclosure situation, however, like I said earlier people generally will not walk away from a large equity position and will find ways to make that payment so they won’t lose the property. This is good for both investor and borrower in that the borrower gets the property and is good for the investor as they get the yield on the loan without any obligation to fix a property or pay any maintenance, utilities, or taxes.
Hard Money Loans have been used for fix and flip properties and fast funding. For the fix-and-flip property buyer, it is extremely helpful to have money ready and available for fast closing so these types of Real Estate flippers usually have a good private money lender that they can draw on at any time to get the deal where others may not be able to close as fast. In addition, with a fix-and-flip loan, we have investors that will fund the costs of improvements up to 65 or 70% of the projects after repair value, which is helpful to obtain the fund to fix the property. At MAE Capital Mortgage we work with many of these types of Fix-and-Flippers to fund property fast.
The terms of Private/ Hard Money loans vary a bit, but they are generally a 1–5-year Interest Only Loan. The interest rates will vary greatly depending on the Loan to Value, property type, and borrower experience. The beginner borrower will probably be looking at interest rates between 10% and 12%. An experienced borrower or someone with good credit may be able to get rates as low as 4.99% and everything in between. The cost for private money to the borrower ranges from 2%-6% of the loan depending on the investor and the risk. These costs are generally factored in by an experienced Real Estate Investor into the profit margin for the project they are buying.
Using Private funds to fund your Real Estate project is not for everyone, but you know when you need it, and we are here to help you fund your projects. With a relationship with a Hard Money Broker over time or after a few transactions, you tend to get better pricing and lower costs when the team understands that you are a good risk. To hop all over with different Brokers you will always be on the high side of rate and fees as private money lending is relationship-driven. Here at MAE Capital Mortgage our experienced team of loan officers has the investors and the tools to get you closed when you need the funds. WE look forward to helping you whether you are a novice or experienced we can accommodate your needs. Call us today at 916-672-6130.
“ I heard the market was red hot and homes are selling for more than the asking price” this is what we are hearing daily from our clients. Is this true anymore or is something else going on now? All you hear on the TV and Radio is that the Real Estate Market is red hot, but is this really true? In my 37 years in the Real Estate and Mortgage business, I have never seen a market quite like this one we are experiencing. I also hold a degree in economics and have not seen anything like this in history. So what’s going on, one minute things are going crazy with low interest rates and more buyers than sellers. The next minute everything slows down.
This is happening across the board, interest rates are still at historic lows, but it appears everyone that has had the opportunity to refinance and take advantage of the low rates has done sone so. Or is it that, like COVID, we are about to experience a second wave of people refinancing and buying homes. We have never seen such a market in the past so there is no real model to judge this on. But we have seen a dramatic slow down in home buying and refinancing over the last 3 months. In California, they lifted the mask mandate, and it appears those that have been locked down decided to all go on vacation at the same time.
We generally see a summer lull in Real Estate, however, this one is far more pronounced than ever before. It has me and others asking if this lull is just that or is it something else? I do see this as the market seeking an equilibrium point, not an all-out bust. I have seen big news in the markets before and the way the markets tend to react to this is by over-correcting on both sides. I would liken this to stretching a rubber band and letting it go, it will spring up then back down then reach an equilibrium point. Right now, in the real estate market, we are seeing a bounce down or a slowdown after it was super-heated.
Another factor that we have not seen before is that California was shut down for 15 months and people were told to stay inside and not travel. In a normal year, people would travel all time of the year but the last year and a half have been far from normal. What we saw during the pandemic was people staying home not traveling, so when they were told they could now go out and about they did and they are still are taking vacations and traveling not thinking about Real Estate or their mortgages. Couple that with their kids being out of school they are taking full advantage of the time they have out of their houses seeing family they have not seen in months and enjoying the outdoors while the weather is good.
Understanding how humans think is a big part of economics. So as schools reopen in August and kids head back to the classrooms that will leave the parents back home and working with the time to think about their living situation and their financial situation. Coupled with low-interest rates that the Federal Reserve says they are keeping low until 2023 I believe that the Real Estate market will pick up again by the end of August and into September, but it will not be at the pace we saw during the height of the pandemic thus the bounce. Another interesting phenomenon that will be discontinued in September is the extra $300 a week in unemployment benefits. This will send people back to the workforce, but will the economy be able to accept all of these long-term unemployed folks that took advantage of the system? As an employer, I would not hire an able-bodied person who chose to stay on government assistance rather than work as that shows me laziness and I think this will be a big issue in the high-end job market. Entry-level jobs like Walmart, retail jobs, and restaurant workers will be happy to take these folks back into the workforce as those workers can easily be replaced if they don’t work out. But I digress, those entry-level workers will not be homebuyers in the immediate future but having them back in the workforce will allow management and owners to realize a better income level so those folks will be the benefactor of the ability to purchase real estate. So my crystal ball says that by September we should start to see Real Estate pick back up for all the reasons that are not the standard reasons for Real Estate to boom or bust. To get started today and beat the rest of the crowd call one of our Real Estate Professionals to get pre-approved for a home loan and start your search as new listings hit the market you will be there first. If you have been waiting for your credit score to improve before refinancing start now ahead of the crowd Interest Rates are still in the 2’s and 3’s. Call MAE Capital Real Estate and Loan to get started at 916-672-6130.