If you are in the Mortgage or Real Estate business currently you are experiencing slow times and you are working harder than ever. I am here to tell you that these slow times are all part of the business cycle that has been disrupted over the last 20 years or so. With all the disruptions to the economy over the last 20 years starting with the rise and fall of the sub-prime era of the early 2000s and the recession that followed the recovery and then the pandemic the U.S. economy has been put the challenge. The Real Estate Industry followed right along with the economic rollercoaster. Having seen the type of market we are in for the first 20 years of my career I almost feel comforted by the normal slowdown of the Real Estate industry after the boom we just came through. In the late 1900s, the cycle for booms and busts was on an almost predictable 10-year cycle, and normal slowdowns during the months of November, December, January, and February (the winter months) were predictable. The change began when we should have had a slowdown in the early 2000s instead the Government came out pushing the Community Reinvestment Act of 1977 in an effort to get low-income folks into housing. Thus, beginning the “Sub-Prime” era of lending with little or no oversight over lending and financial institutions. By 2008 the economy was pushed past the adjustment period it should have had and coupled with financial institutions failing made for a perfect storm.
We know what followed, the crash of 2008, and in a lot of ways it is still affecting the ways we do business in the aftermath of no oversight to the new age of total oversight. Fast forward to today, we are coming off one of the hottest real estate markets since the “Sub-Prime “ era where money was flowing, and this time money was flowing with low-interest rates. So, it is perfectly normal for the economy to take a deep breath. During these adjustment times or slowdowns, you will typically see a consolidation of Financial institutions and Real Estate firms it is a time for the well-positioned companies to gobble up the companies that couldn’t see the change coming. We are seeing both Realtors and Loan Originators depart the business for a steady paycheck. This is normal, and so will be a sagging stock market as the Real Estate Industry is one of the largest manufacturing sectors of our economy and drives so many other industries like construction, home improvement stores, home furnishings stores, and so on. Technology is also affected when the housing industry slows as fewer people are investing in new technology when the old tech is working fine for time being.
This economy is normal but if the politicians see it as problematic for their future, they will do stupid things to try and stimulate the economy. The biggest mistake the government has done over the last few years, pandemic and post-pandemic were to issue “Stimulus Checks”. Putting more money into the economy does 2 detrimental things to the economy down the road, it devalues the dollar and creates inflation. This is where we are at today. As a follower of the economy with a degree in economics, it is not too hard to see the effects of Government intervention in the economy. Unfortunately, there is another way the government can stimulate a sagging economy and I don’t want even to bring this up, however, in light of recent events it must be said. War is a way to stimulate an economy and to keep power.
Ukraine is going to be the war our government will get us into if “We the People” don’t stand up to it. The reasons for this conflict are crystal clear from my standpoint. One: The formation of BRICS (Brazil, Russia, India, and China) is the formation of those countries denouncing the US Dollar and creating a new currency built on a precious metals standard. Since its formation, Saudi Arabia, and South Africa have joined. This could very well mean the end of the US dollar’s dominance as a world reserve currency. Second, is the United Nations, the World Economic Forum, and the World Health Organization and its push for global governance where the BRICS nations are not on board with this agenda, and quite frankly we should not be involved either. Third: Oil and the flow of this resource or more so the control of the flow of oil is what is going to turn out to be a part of this global conflict. I am not a doomsday kind of person, so I am praying that I am terribly wrong and the world turns to peace and unity rather than conflict.
Not to ignore the elephant in the room, but I prefer to stay positive and to look at this time in our economy as a normal economy taking a breath after a very busy and robust time. Going back to the crash of 1929 and the Depression that followed the nation's economy has seen this speed up and slow down pretty consistently. At the beginning of 1941, we were still in the depression but the recovery was well underway, but the end of 1941 December 7th to be exact is when we were officially out of the depression, and in 1945 when the war ended the economy was in full swing and returning Veterans had jobs to come home to and homes where being built and an extreme pace. Things slowed a bit by the end of the 1940s and we entered into the Korean war and things pick up again. The 1950s were a time of peace and prosperity. In 1960-1961 there was a recession caused by the Federal Reserve raising interest rates, then recovery. Then in the early 1970s was another recession caused by “the oil crisis” which also caused the stock market to crash as well. Then we had recovery and in the early 1980s we had the “crisis with Iran” again over oil and there was a recession. Recovery then followed and in the early 1990s due to the stock market crash of 1989, we again were in a recession. The early 2000s had a slowdown but not as much as it should have spurred on by the ease of obtaining money and the creation of the "Subprime Mortgage" era. This led to 2008 which as we know was the worst recession since the 1930s. By 2011 we, as a nation were in recovery mode again. Then in early 2020, COVID threw the country into an economic lockdown to a degree our nation has never seen. To get us out of this recession the Federal Reserve lowered Interest rates to the lowest levels in history and so began the last housing boom. Now we are resting and if we let our economy follow the normal cycle, we should be out of this by the end of the year 2023 or the beginning of 2024.
Invest and buy real estate now while the economy is resting for if you think that interest rates will return to the historic lows of 2000-2021 you would be drastically wrong. We are close to the equilibrium point with higher mortgage interest rates the economy will do far worse any lower we will have higher inflation. It is all guesswork on Federal Reserve’s policy with interest rates and they hope they get it right with respect to inflation. As a Real Estate and Mortgage Professional all I can tell others out there is to stay the course or if you can’t get out and find a steady paycheck. Those that can weather the storm will end up at the top of the food chain when this comes back around and it will, it always has. You see people always need housing and money so those of us that stick it out will be there first when it comes back. So don’t despair get everything in place for the next housing boom and when it comes you will be ready. Those consumers looking for housing now will find what they want a price that they can afford with a payment they can afford.
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.
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.
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
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.
We are coming out a year-long pandemic that has shut down certain sectors of our economy and now with the vaccine people are feeling better about going out in the world. The Government has infused $1.9 Trillion dollars into our economy and other countries. People are getting their stimulus checks whether they need it or not. The stock market is at all-time highs and the Real Estate market is so hot it is prohibiting first-time homebuyers from entering the competitive market. This all sounds like great news right, but is it? This remains to be seen but if we follow the logic and basic economic principles this short-term run of euphoria will run out of gas over the next several years and here is why I say this.
Assuming the worst of the pandemic is behind us and those stores and restaurants that have been closed or limited in capacity will soon be up to 100%. What will consumers do? That is the question, will consumers go to Shopping Malls or stay to ordering online? I do believe that people will go to restaurants again as that is social and people are social animals. The landscape will look different as people’s habits have changed and adapted. Travel will also begin to get back to normal as people will want to finally go on a vacation and after they are vaccinated, they will feel confident in traveling again. So as far as the obvious things people desire those will come roaring back but what about the price of those goods and services will they be able to afford the new higher prices?
Higher prices of goods and services are inevitable with higher gas prices and inflation and the devaluation of the dollar. Although the Federal Reserve has said they will not touch interest rates until 2023 the market will have other aspirations. We are already seeing higher interest rates in the mortgage market as a result of the economy opening and stimulus. Higher gas prices are due to the current administration’s killing of the Keystone Pipeline and moving to more oil dependency from foreign providers. That dependency on importing oil makes the cost go up as opposed to relying on domestic oil production. Thus, higher prices for goods and services that are imported, shipped, trucked, or driven to the marketplace. We are also seeing increased prices in commodities (steel, copper, gold, silver, lithium, etc.) as the price to produce them has increased. This makes automobiles and other items that depend on the price of steel or commodities more expensive to produce thus more expensive for consumers. This is what we call inflation.
Inflation, left unchecked, can cause more problems than just higher prices of goods and services. Inflation will cut potential buyers of goods and services out of the market thus causing businesses that sell those goods and services to slow production and lay off workers. For example, automobiles, if the price of a new car is so high that the average or middle-class person can’t afford one they will not buy new cars, they will be relegated to buying used cars until their income catches up with inflation. This will cause the automakers to slow and have to lay off workers. This affects all goods produced thus causing other industries to have to lay off workers as well. So, inflation is one of the most toxic things to occur in any economy. Traditionally, the Federal Reserve would raise interest rates to slow inflation by making the cost of money more prohibitive for expansion. Inflation is caused by 2 things; one the demand for goods and services are higher than the supply and; two the dollar is devalued to other currencies. Currently, we are seeing both in action.
The demand for housing currently is a good example of where the demand exceeds the supply and that is why you are seeing skyrocketing housing prices. You are also seeing the cost of the materials rising at a higher rate than normal to build a new house so new house prices are going up in response to demand and costs to produce. In the short run, in the next 1-2 years, you will see this trend continue, and coupled with low-interest rates to buy a home the demand will stay strong. The housing market will slow only when interest rates go up and the demand slows until then you will see increases in housing prices to the point that the average person can no longer afford a home. The worry is that supply suddenly increases as people realize their homes are worth far more than they thought so they decide to sell all at the same time. This would only be bad if the supply of homes for sale exceeds the demand for the houses. When that happens, it would mean that all the demand has slowed due to higher interest rates or higher prices or high unemployment, or all three. This is what we would call a perfect storm and we saw this occur in 2008 when the housing bubble burst.
So, for the short term in the economy, we see higher inflation with industries opening up again and with the stimulus checks going out to Americans and to other countries. The inflation we see will keep going as people get back to work and people feel better about their personal finances. As people spend their stimulus checks or invest them this will keep the short euphoria going. In the long-run, if inflation is left unchecked, the worry is that we will start to see normal economic moves such as higher interest rates to fight inflation which will cut people’s ability to buy higher-priced homes. This will cause a slowing in demand for homes and eventually we will see supply exceed demand thus prices will have to go down to adjust for that. How bad will this adjustment be is yet to be seen and will hinge on what monetary and fiscal policy the government adopts. If the government raises corporate taxes to a point where corporations can no longer expand or hire, we could see an increase in unemployment which will hurt the economy. The Government has also talked about raising taxes on individuals as well to pay for all this stimulus. There is also talk about raising the capital gains tax to 43-48% from the current rates of 15-20%, if that happens people that have investments in Real Estate and Stocks or commodities will be impacted by either not selling or if they do having less from the sale to reinvest in the economy. In addition, if gas prices rise too high we could see a phenomenon that we have not seen since the late 1970s when we had “Stagflation” where we had a stagnant economy with inflation and super-high interest rates. I do understand the human aspect of the government wanting to help people, but my worry is that what might be nice today will hurt tomorrow. The $1.9 trillion dollars the government just spent is a worry that every American should have as that will have to be paid back and with the national debt over $35 Trillion dollars that’s over $80,000 per American that is owed. When will it end, will the debt be called due at some point, do we just ignore it? I am not sure the average American understands what this means to our country and to every American. Now there is talk about another $2 Trillion Dollars be allocated for infrastructure, the fixing of roads bridges.
In the end, every dollar, the government spends it is money that we all owe back as Americans. The way our economic system works is for every action there is an equal and opposite reaction. So, If the government keeps spending our money every American will have to pay for it in higher taxes and inflation. When the dollar falls from the world currency then America becomes like Europe that has had all kinds of problems with their monetary system since they went to the Eurodollar in the beginning of this century. Every American has to pay for what our elected officials do. This is not a political statement it is fact, and it is the way our country was founded. What can be said about our economy is that we are in store for inflation and higher interest rates which will slow the economy and the slowing will cause higher unemployment. We have the ability to stop all of this but the average American will not understand these basic principles as all they will see is the short-term benefits not the long-term harm. We all need to learn basic economics so when we go to vote we are not harming our children and their children. Rates are still great so if you have been thinking about refinancing or buying, now would be the time and everyone needs to look toward the future and hold their elected officials accountable.
If you have been in the market to buy a home in the last 5-8 months you have seen competition for homes to likes we have not seen since the sub-prime era of the early 2000s. If you currently own a home and have been looking to take advantage of historically low-interest rates, but have found it has been taking far longer than you would have expected, you may be asking; what is going on? Americans have been under the crushing fear of a virus that most know nothing about and the Government has been closing businesses and making people work from home for the last 8 months, so you would expect that things would be slow right? Actually, quite the opposite. With the Federal Reserve lowering and keeping long-term interest rates at historic lows those that have “essential jobs” are thriving and are looking to better their financial situation by refinancing to lower their payments or take cash out to do home improvements or sell and move up. The combination of a hot Real Estate Market and low-interest rates are creating a strain on a system that is already overloaded. So what’s going on?
Real Estate has been booming as people have been forced to work from home and are looking for those properties that better fit their family’s needs. This is a dynamic that we have not really seen before as most of the time people prefer to live closer to where they work. Now that work is from their living room, or spare bedroom, or even the kitchen table people are realizing that the space that has fit them before the Health Crisis no longer fits their needs. Add children who have too distant learning to the equation and people have quickly found out that their existing living conditions could be better. So we are finding people selling homes that they have outgrown and people buying homes that need more space for their family, this includes first time home buyers. As renters are also experiencing the same restrictions, they see that buying a home becomes a better option and are now in the market as well.
That said, how do you get in the game, so to speak, to buy a home? Most of all homes on the market today are being sold in the first few days of the listing being offered to the public with multiple offers. How do you win your offer when there are so many others to compete with and homes selling well over the asking price? My recommendation would be to make sure your offer looks clean, what I mean by that is to do your homework upfront and be prepared to not get the deal of the century but to accept that you will be offering over the asking price. So, if you maximum price you qualify for is a certain number be prepared to factor in about a 3-7% upward margin. Simply put if you are looking for a home listed for $400,000 be prepared to go as high as $420,000. Hint: don’t start your search at the top of your price range go down 10% so you know you can compete. Next make sure you are with a Mortgage Broker that can offer you the lowest rate possible, like MAE Capital Mortgage where we have negotiated lower rates with the lenders, we do business with. If your rate is .25-.5% lower that can afford you up to $20,000- $50,000 more in buying power, so if you have been prequalified by a lender let MAE Capital check to see if we can do better and win your business and your new home for you. Another tip to look at is the type of loan has a major part in the negotiating process as well. A loan that offers the least amount of costs to a seller the better your chances are to get your offer accepted. An example would be a conventional loan versus a VA loan. Although we really want to help our Veterans out, sellers just care about the bottom line and with a VA loan the seller would have to pay some of your closing costs by the design of the loan and the seller would have to be able to provide a clear termite report where a conventional or FHA loan does not have those restrictions to the seller. The less you have to ask the seller to pay for in this market the better your offer will look to the seller.
Anyway, back to the conditions causing this manic moving trend and the plugs in the system and how to overcome them. With the COVID ruling the land currently and the potential for the government to enforce another round of “stay at home orders”, “Home”, has become the magic word as we do not know how long this will be going on. Combine this with a record volume of folks seeking low-interest rate home loans and it is a combination for frustration. The volume of home loans in the system and the work from home orders are putting an additional strain on the lending industry as well. Some of our major lenders located in states that have strict lockdown or social distance directives are forcing them to work from home as well. The problem with this is the fact that so much of lending is done face-to-face within companies it is making timeframes take longer. When an internal worker has to email their superior or underwriter or any one of the people that comprise the process flow of a lender it will take longer than simply standing up and walking down the hall to get an answer. When we want the process to work as it has always worked and have expectations of consistency and don’t get it we become very frustrated, at MAE Capital Mortgage we have always strived for top-notch customer service and when we don’t get it from our partners we depend it becomes frustrating not only for us but our clients as well. We all have to be patient during these trying times and the good news is that interest rates remain low and the Federal Reserve has vowed to keep them low for the coming year.
Where does this leave you if you are entering the process of buying a house or refinancing an existing home? First and foremost, you have to be patient with the process then you have to be educated on the process and how you can best manipulate it into your favor. The best way is to be prepared and has all your documents ready to provide your lender when getting pre-approved for a home loan or starting a refinance. The items you will need to have to get approved for a home loan to purchase a home are; current paystubs for the last 30 days, 2019 Tax returns, 2019 and 2018 W2’s, last 2 months of bank statements, copy of your Identification cards (Driver’s license), if you are refinancing you will need to provide you current mortgage statement and a copy of your home owner’s insurance declaration page. By having your documents ready to go you will go to the top of the heap to be looked at and get a much faster turn. If you are purchasing a home be prepared to make an offer over the listed price of the home as discussed earlier. Having the best partner to help you through the intricate maze will help considerably and here at MAE Capital Real Estate and Loan, we have special low-interest rates that we have negotiated with our lender sources, and with Realtors on staff, you can bundle your home loan and your Realtor to save you thousands of dollars. We look forward to further helping you with your Real Estate and financial needs.
Ok enough is enough we need to open this economy back up. Despite what people say about the virus it has already played out in California in December January and February. You see every year in California the sun starts to shine more intensely in April and as we move towards summer. It has been widely publicized that the Coronavirus will not survive for long in hot environments. I personally traveled to Australia over the Holidays through the end of December and into January. Upon arrival in Australia I started to feel ill but I was on vacation, so I was not going to let a little cold get the better of my vacation. This mystery cold/virus had me not feeling well with a cough and infected eyes for 2 weeks and by the time we had traveled to the hottest portion of our trip ( Cairns Au.) the illness had subsided. As you know it is Summer in Australia that time of the year so it was warm the whole time. Then a month after I got home in February I got sick again almost the same thing but this hit hard and the cough was more severe and I had a fever and I coughed for a month until it went away the end of February. Then we heard about the virus from China and we were told to shelter in place in March and by that time it had already gone through California. The media neglects to show you a map of the world and how a contagion replicated itself and how it travels the world. If you look at a map you can see that the West coast of the United States, California, Oregon, and Washington would get this virus way before New York would, so it stands to say that California already has developed a herd immunity or it is just too warm for the virus to exist long enough to infect more people. This is not to say it won’t come back and then will we know what to do or do this all over again?
That said, we have to start to believe in in each other again and know that we will get sick and people will die from this virus and many other things that we get ourselves into as a free society. So how do we get the economy going again with people working from home and or laid off and non-necessary business’ that have been closed for so long how do we get it moving? This is going to be tough as the people that have been making money during this have to go out and spend it locally and if they are scared to go out and spend many small business’ will be forced to declare bankruptcy if they have not already. The Travel business: when will people start to trust air travel again, hotels, rental cars, air bnb? There are so many little avenues within the economy that depend on each other, so when you spend your money on travel you are supporting so many others than just the airlines. Restaurants: how are they going to look? Is the government going to make it a law that you must sit so far apart in a restaurant, or have a barrier installed and will consumers want to visit busy restaurants again? If laws are imposed on restaurants to not accommodate as many people, at a time, they will be forced to raise their prices to offset the increased space requirements or shut their doors. Restrictive laws will further inhibit growth and may force many of our favorite restaurants to go out of business. Banking: as you know you can’t go into your bank’s lobby as they are closed. Will they open up the lobby’s again or will they have realized that the consumer has changed they way they can do banking, will we see more virtual banks and less people working in a bank? All of these little things and so many more will play in as the economy opens again.
Do you feel comfortable with your job or your financial situation? That will be the most important question moving forward to open the economy. If you don’t feel comfortable spending, you won’t, and if there are many more people just like you the economy will not open as everyone hopes it will. The United States and capitalism are both all based on consumer spending, without it we have a stagnant economy. On the other hand, is there a pent up demand? Consumers that have been scared of going out now have the green light to move about so they go out in hordes and buy up things at a fevered pace. If that is the case the economy will quickly get back to some sort of normalcy.
Either way the Real Estate and the Mortgage Industry will need time to get back to normal as well. If consumers are tired of the house they have been locked in for the last month and a half they will seek out a new house for their family. If one family that decides to sell their house and buy a new one that will help Realtors, Mortgage Companies, Title Companies, Appraisers, Home inspectors, termite companies, sign companies, credit reporting companies and home improvement stores. So, if people don’t sell and buy after this is over you can see all these industries effected. However, there is another little problem that will arise out of all this and that is employment. The people that have lost their jobs during this crisis will not be able to buy a new home, in most cases, until they have gone back to work or can pay cash for a house. Households may have had one of the two workers laid off and may not have the ability to save for a down payment or may not feel comfortable so they will hold off until they feel comfortable again. Another concern people’s credit may have been hurt by this not allowing them to qualify for a home loan. People that have not made their mortgage payments will not be able to refinance to the low interest that will be there to stimulate the economy when this is over. People that did not make their rent or car payments may not be able to buy a home for 12 months after the crisis.
Not to be a downer but it will take some time to get back to Real Estate as normal. I heard from CAR (California Association of Realtors) that Realtors may not be able to show homes and that virtual tours are going to be the “new normal” of selling homes. This means people will not be able to see the home they are buying in the inside until they can do a walk through at the end of the transaction. This may see the demise of Real Estate transactions at the end from homebuyers seeing the house for the first time and may not like it. This will be interesting to watch unfold as people get more “used to” the new normal.
Let us conclude this with some positive news with the Mortgage industry. Interest Rates are the good news here with them staying down. Although there is still a lot of confusion in the Mortgage industry things are getting done. Now that we have figured out how to work with large companies that have their workers working from home we can navigate through the process as well or better than most in the industry. Here at MAE Capital we are booking new refinances every day. People can apply from their home on their computer or they can download our App and do it from their phone. As far as delivering documents to us you can scan the documents directly from your phone using an App like Cam Scanner. Our experienced Loan Originators can work virtually from anywhere so you will be taken care when you apply for your refinance with us. We look forward to working with you.
OK the world has gone crazy, have you? Do you have 2 thousand rolls of toilette paper, 15 bottles of hand sanitizer? I get the idea of being prepared, but to hoard essential items is ridiculous, but with the media fanning the flames of hysteria I understand the effects. What the average person doesn’t understand is how all of this works from an economic point of view. We have a situation that we have never seen in history, and history is how we evaluate the present in economics. Economics and theories that support the way markets interact are changing as I write this. Obviously demand and supply is still in full swing, but in very different ways. What we are seeing here is a rapid shift in demand from a wide variety of items that people want or need on a daily basis such as cars and appliances and other items that are nice to have but in the overall scheme of things are not as necessary as food and basic need items like toilette paper and this is why we are seeing a rush on these items.
So, it stands to reason that if the demand for those nice items such as Real Estate has diminished, temporarily, you will see some real change. In the short term you will see Real Estate values will correct downward as people are not going to buy during these times. People are also worried about their jobs going away or that their income will be cut from layoffs or even getting sick. Interest rates are not helping with this at all, despite the Federal Reserve lowering their Funds rate to zero. What people don’t know that Long-term mortgage rates are not controlled by the Feds. In actuality, the mortgage markets have gotten worse and rates have risen significantly over the last few weeks. Where the long-term mortgage rates, in the beginning of March, was down to 3% and now after all the panic in the markets long-term rates are up to around 4.5% or more. Why is this happening? The answer is complex, but simply put, when everyone is trying to sell their investments and there are not enough buyers price has to go down to get people to buy. When talking about interest rates you get an opposite effect as Interest Rates have to go up to attract investors to buy them (the Mortgage Notes), put simply.
So, you have people with no jobs, or are laid off, and have a higher interest rate environment, the demand for housing dramatically down. What you have here is a perfect storm. The demand for housing or home ownership is going to stop until the world gets figured out. The good news is that those that do own a home will most likely be able to keep it as the Government has enacted measures that will not allow mortgage companies to foreclose during this crisis. Mortgage companies can offer forbearance as an option during these tough times, which is putting your mortgage payment off until you get your job back. Forbearance, has to be granted it is not a given even in these times, you have to ask your mortgage company for forbearance and they will grant it to you if you can prove you have been financially hit. So don’t just stop making your mortgage payment call first, but also know that you will have to pay the amount back that you are not paying now, it will be added to the end of your mortgage and you will pay interest on it.
Renters that lose their jobs or can’t pay for some reason can’t be evicted for up to 4 month but know that you will have to pay that amount back within 2 years to your landlord, so if you can make your rent do as you will get way behind and may get evicted in the end. It is always recommended that you make your housing payments if you can, because getting behind on payment that large may get you to a point in time where you just can’t make it up. On the other hand, if you are renting and have been saving to buy a home and you don’t use that money to live on during these times you could come out of this being able to buy at low prices.
If you have been considering selling your home, it might be prudent to wait until people get back to work in a few weeks to put it on the market. Realtors in this market are seeing people that had their homes for sale prior to this put their listing on Hold. What this means is that the sellers of property that put their listing on hold can’t show them or make offers on them but by doing so their listings are still being seen by potential buyers that after the crisis is over may be looking to buy. As in the Stock Markets you want to buy low and sell high and I think that in the short term there will be deals for investors to get in on, but it will be short lived. As this crisis ends and people go back to work their attitude will change towards buying again as they feel more financially secure. If your house is on the market right now be patient and talk with your Agent as to how to strategize the sell of your home when this is all over. I see that there will be a short-term drop in prices but will recover as the Stock Markets recover.
This is unheard of and we have never seen this before on any scale let alone as large as it has gotten, global. With no history to look back on we just don’t know what is going to happen. In history we had a pandemic in 1918 that ended up killing over 100 million people, we don’t see this happening with this one, but there was a war going on at time and no shelter in place orders. During that time the war machine was roaring so the economy was not hit nearly as hard as this one with everything shutting down. So, we don’t have anything else to compare to in history as to what is going to happen. I can’t help but to think when this goes away what economic carnage will it have left for the entire world to mop up? What I do see is that Interest Rates will come back down as the Government pumps money (liquidity) into the banking system and they start purchasing Mortgage Backed Securities again. With Rates going down people will refinance their existing debt to lower rates and take equity out of their home to recover from this time. For now, we all have to wait and be patient, put things on hold, and enjoy what we have and help others that may not be as fortunate.
Here is a topic I have not visited in while but feel it is time again to address what is going on with mortgage rates. The stock market has taken some serious hits over the last few days due to concerns with the Coronavirus and that has put downward pressure on the US Treasuries and the bond markets. Why you ask? I will get into the details of why later on but know that when there are panics in the Stock markets money tends to flow towards safe and secure investments while the markets are gyrating like bonds. Some of the reasons the Stock Markets have corrected downward is over fear of the Coronavirus and the price wars going on now with oil prices after Russia pulled out of OPEC. So there are a lot of economic new stories right now driving the markets.
Let’s talk about the effects of the Coronavirus and why it is driving the Stock Markets down around the world. But first you have to understand what stocks are. Stocks are shares of large companies that are sold to the public so the company can remain capitalized (i.e. have enough ready capital, money) to build and expand their business. People who buy and sell stocks tend to look for companies that will have good growth into the future to buy so the hope is the value of the stock will grow with the company. Investors in stocks will tend to sell their stock in a company if they foresee a potential down-turn in the company’s profits. That said with this threat of Corona virus in the public it is believed that people will not buy or do normal activities if they can not go out into the public, thus not spending money on goods and services they would normally have spent their money.
Now that you understand how the markets work in a basic form you now can see why the markets have been selling off. But how does that affect the interest rates you ask? Well this is where is gets interesting so follow along closely as I am about to open a door into a reality that few actually see or know about and that is economics. As we have seen the Stock markets selling off due to the potential earnings loss of companies due to lack of demand (people not buying goods and services), investors in the Stock Markets have been looking for a relatively safe place to park their client’s money during this correction. The place is the Bond Markets where fund managers and Stockbrokers park funds while Stocks settle down. Specifically, the United States Treasury Bonds are the specific bonds that are purchased. This is where it gets really interesting so hold on to your hat. Not only do Stockbrokers and Money managers park their funds in U.S. Treasuries, the Mortgage industry uses the 10 year Treasury Bond to hedge their bet on interest rates.
Hedging defined is buying or selling an investment to reduce the risk of an adverse price movement of another investment, kind of like an insurance policy. In other words, the folks that sell mortgages will buy U.S. Treasuries to offset the possible movements in the interest rates. The concept of hedging is important to know because the interest rates are being driven by this right now. As the Stock market continues to correct and Treasuries are being pushed to their lowest levels in the history of the Treasury market, so what does this have to do with long-term interest rates?. Although this does not directly affect interest rates it does take a way the hedge vehicle for mortgage bankers. In response to that when interest rates should be declining, they have actually raised. That’s right interest rates have gone up over the last few days as the Stock Markets declined the Bond Markets rallied but longer term interest rates have actually gone up.
The Federal Reserve saw this affect happening and decided to lower the rate they can control to try to stimulate the markets with low interest rates. You have to understand that the Federal Reserve does not control long term interest rates, the only rate they control is the Fed Funds rate. The Federal Funds Rate is that rate in which Banks can borrow from the Federal Reserve. The rub is that banks don’t need to go to the well for money in a strong economy to borrow money. So, there is little to no effect on long term mortgage rates with the Federal Reserve or “Fed” lowering their rate.
On another front is oil prices and their effect on long term interest rates. With Vladimir Putin pulling out of OPEC ( the largest oil cartel on the planet who sets oil prices around the world) and OPEC responding by lowering crude oil prices to as low as $31 a barrel creating essentially a war over the control of oil prices. This has a very adverse effect on American oil production as when oil prices dip to these kind of lows American oil companies cannot produce oil at that low of a price it will become more beneficial to import oil at the lower prices and hurting American oil producers and the workers that produce the oil. There are now worries over American oil producers filing bankruptcy. This now will impact American workers and those that support that industry like steel, heavy machines, plastics and so no, then the effects trickle down the towns in which those workers live and those companies that support those towns. This will inevitably turn up in our unemployment numbers signaling a slow down in the overall economy. This affects the Stock markets in the same ways as mentioned above.
There is a bunch of things happening to where the Stock Markets and the Bond Markets have been reacting crazy. This is a very unique time in our economy to watch what is going on as it is truly historic and has been going against everything we know and seen over time. There is a component that I have not mentioned here that is hurting the overall economy in ways it has no idea and that is the media. The media has been blowing this virus out of proportion to the point that people are panicking and running scared. I do not profess to know anything about this outbreak nor do I profess to be any kind of medical professional but what I do know is numbers and when you see the differences between the deaths by Coronavirus versus the regular Flu there is no comparison far more people have died year to date over the Flu, so it stands reason that there is a abnormal hysteria going on out there. I am not trying to discount how terrible this virus is, but I can’t buy into the hysteria.
So, if you are wondering and scratching your head as to why interest rates have not done what the media is implying this is why. Interest Rates are great I am not going to discount that and yes I love the attention we are getting from the media that interest rates are at historic lows it has been great for business, but don’t get set on getting a long-term mortgage in the 2’s without paying greatly for it. My team is ready and waiting for your calls to go over your existing mortgage and see if now a great time to refinance. We can refinance your mortgage without resetting the term which is a huge help with the over all interest you would pay on a mortgage over time. For example, you took your existing loan out 2 years ago and have 27.5 years left on your existing loan and you don't want to lose those years you have already paid. How about a refinance that would be a 27 year loan as to not take away the time you have already paid, we are doing this all the time. For more information on refinancing your home or investment property give us a call today and we will tell you the truth about Refinancing and give you the best interest rates from Banks across this great nation. 916-672-6130 and download our app for free.
Buying a house is a goal for many people in the United States, with some 79 percent of those surveyed agreeing that homeownership is part of the American dream. There’s no doubt that this is a monumental life event — and the hefty financial investment it requires reflects its significance. If you are purchasing real estate, you want to make sure the property you receive is in great condition. To assure this, part of the buying process involves determining the type of repairs the structure requires. You can even ask the seller to cover certain maintenance works. Find out how it works below.
Review the Disclosure Documentation
So-called “disclosure laws” require the seller to reveal problems related to the property, such as a leaky roof. This involves the seller filling out template documents answering a series of yes-or-no questions. Topics covered include former renovations and home improvements, as well as any past defects, property line disputes, and pest infestations. This list of disclosure laws by state will help you determine what the paperwork in your area should cover.
Check the disclosure forms against city building and zoning reports for the property. If the seller completed improvements without the proper permit or municipal approval, for example, then these may not have been done according to health and safety codes. There are also financial aspects to review; for instance, if the home was repossessed in bankruptcy proceedings in the past, you want to be sure the seller (and not the bank) is the rightful owner according to the property title.
Schedule a Home Inspection
A home inspection is needed to check for additional issues. Hire a third-party inspector to review diverse property components, including the roof and HVAC system. They will produce a written report detailing any red flags, such as mold in the basement. As the buyer, you are responsible for bearing the costs of a home inspection. According to HomeAdvisor, the average cost is $278 to $390 — but this is just for the report. If problems arise, you also need to factor in repairs. A new furnace can easily cost over $13,000, for example.
There are some renovations that you should simply resign yourself to covering as the buyer. Cosmetic issues, for example, are not something you should demand the seller cover. If the deck needs staining, kitchen tiles are cracked, or paint is nicked, handle these improvements yourself once you've moved in. Outdoor landscaping and fence repairs are also something you can add to your own “to do” list. However, there are some elements that you can ask the seller to cover, as discussed in the next section.
Negotiate with the Seller on Select Repairs
Major home inspection items to bring up with the seller include water drainage problems, wildlife infestations, elevated radon levels, and significant plumbing impediments that interfere with the home's day-to-day use. This list from Clever includes more such points, like lead paint and a leaking roof. When these problems turn up, you should ask the seller to cover them. If the seller is to cover improvements, this needs to be confirmed in writing.
When negotiating costs, you can ask the seller to cover repairs up front or request that they reduced the home's sales price, leaving you with the extra funds needed to undertake repairs. This latter option has the advantage of giving you full agency over who does the work. Any larger issues that affect the house's overall safety — such as asbestos removal — should be a priority and addressed before you move in.
The above pointers will help you determine which problems exist with a property before you have invested money in it. Unfortunately, a lack of agreement between buyer and seller regarding repairs can lead to a deal falling through. Even major problems in the home inspection may be grounds to keep looking. Don’t get discouraged: You want your dream home to be safe for you and your family. This guide assures your peace of mind. Please fine more information at https://www.maecapital.com/RealEstate or call us and we can help you with all aspects of buying a home.Article by: Natalie Jones
Photo Credit: Pexels
Aging in place is becoming a norm rather than an exception. About 76 percent of people over the age of 50 want to remain at home for their senior years, according to AARP. Aging in place tends to give people a higher quality of life, but also comes with its fair share of risks. Did you know that an older adult is treated in the emergency room for a fall every 11 seconds? Fortunately, many fall injuries are preventable. Here are some critical steps you can take to protect your well-being while aging in place.
Start an Exercise Routine Today
Keeping your body strong, balanced, and flexible is critical for protecting yourself from injury. Get an early start to keep your body resilient. This will help prevent muscle loss and maintain joint mobility as you grow older. In fact, a recent study revealed that long-term exercise significantly reduces the risk that an older adult will experience a fall. Research suggests that about three hours of weekly exercise is your best bet. Exercise at home or head to the gym — it’s your choice! If you're a Medicare subscriber, you may be eligible to access 13,000 nationwide fitness centers through the SilverSneakers fitness program. Certain Humana Medicare Advantage plans include this benefit. So, consider switching your plan during the Medicare enrollment period if you're not already enjoying this valuable perk.
Engage in the Right Types of Exercise
Not all forms of exercise are equal. While aerobic activity has amazing benefits for your heart, digestive system, and mental health, strength training may be the most important when it comes to fall prevention. Core muscle strength will catch you when you start to stumble. If you’re new to weightlifting, talk to your doctor before you begin. Start slow — using your body weight or resistance bands at first — and work your way up to heavier weights as your muscles grow stronger. You can try some of these senior-friendly resistance exercises to get started.
Balance and flexibility exercises will also improve your stability and reduce your risk of falls. Static stretches (held for 20 to 30 seconds) and dynamic stretches (moving stretches) have surprisingly positive effects on overall mobility. This list of stretches from Yurielkaim includes examples of both static and dynamic stretches that are good for seniors. Additionally, try yoga or tai chi for an excellent combination of flexibility and balance practice. These activities are also wonderfully meditative!
Make Some Home Modifications
In addition to key lifestyle changes, you can further prevent falls while aging in place by making some home modifications. Start by clearing clutter from your home and giving each item you own a special storage place. This will prevent things from ending up on the floor and becoming tripping hazards. Remove slippery area rugs and use rubber-backed non-slip rugs in your kitchen and bathroom. Lighting that is too dim or too bright can also be a problem, so set up night lights to illuminate paths you may need to walk at night and install dimmer switches throughout your home. Use curtains to block out disorienting glare from the sun. Also, grab bars by your toilet, bath, and bed can be very helpful.
If Finances are a problem to do the home improvements consider a Reverse Mortgage to utilize the equity in your home to fund these modifications. With a Reverse Mortgage you can use the equity and never make a payment until you move from the residence.
Finally, pay attention to your clothing. Clothes that are too tight may restrict your blood flow and make you lightheaded, while clothing that is too loose can catch on items as you navigate your home. Avoid loose-fitting shoes or those with slippery soles. Try to find shoes that fit comfortably and support your feet properly.
Install Life-Saving Technology
Don’t let your home modifications stop there. Technology can help you get assistance more quickly if you do have an accident in the home. Smart shoes, tracking devices, and fall detection, as well as automated lights and thermostats, will help you maintain your independence and safety while living in your own house.
As with every aspect of health, preventing falls will take some preventive effort. Maintain your muscle strength and flexibility, take special precautions, remain aware of your surroundings, and remove anything from your environment that could become a hazard. By reducing your risk of falls, you’re securing a future for yourself in which you have the independence and confidence you need to live in the home you love.
Take the Financial Worry Out of Staying in Your Home
Don’t let the financial worry of the home effect your health. Money worries can cause health problems. As the price of goods and services continue to rise the income of seniors may not keep up with the rising costs of living and this can cause undo stress and lead to health issues. A Reverse Mortgage from MAE Capital Mortgage Inc. may the answer. These mortgages have come a long way over the last 30 years. The extra income generated from a Reverse Mortgage may be the difference every month in being able to live and enjoy the retirement years instead of worrying about the rising costs of goods and services and medical expenses. There are protections built into these loans to insure the seniors will be able to leave their home to hires when they are gone.
Taking some of these steps will ensure that the “Golden Years” are, in fact, Golden. Here at MAE Capital Real Estate and Loan we know the value of our senior population and hope to make all lives better with our services.
As we embark into 2019 I enter my 35th year in the industry. Not saying I have seen everything but I have seen enough to know what is around the corner for Real Estate and Interest Rates. History seems to have a way of repeating itself over and over especially with Real Estate and market trends. So as you read this you will see references to the past as that is how the future is formed and it has worked consistently for the last 100 years now as we have become a society of growth and invention. But over time we as humans seem to follow the same trends and patterns in Real Estate and the Stock and Bond markets are no exception and we call this the “Business Cycle”.
The Business Cycle is a repeating cycle of booms and busts or good markets and slow markets. In Real Estate and the Stock markets you can really see how this plays out with increasing home prices and lowering home prices and the Stock market going up then sagging back down over the business cycle. The business cycle in Real Estate starts with investors entering the market picking up good deals (as they perceive it to be be) usually after a bust in Real Estate prices. Once investors have taken a good hold in fixing and flipping or creating rental portfolios you start to see the first-time buyers enter the market. When the first-time home buyers are buying and home prices begin to rise again you will see the move-up buyers enter the market creating more inventory. Eventually, over time the supply from the move-up buyers and the new home builders cools the prices from rising as the supply of housing catches up with the demand for housing. When the supply or quality homes for sale becomes greater than the demand you then get a cooling down of the Prices of homes. You will also see new home builders entering the market when the demand for homes is the highest and the supply is the lowest creating a greater supply of housing. This is the Real Estate Cycle that has existed since the beginning of private land ownership.
This is important to know as if you can pinpoint where we are in this cycle you can formulate a plan to buy or sell Real Estate. As far as interest rates are concerned the cycle is about the same but a little lagged compared to the Real Estate cycle. This is simple economics, as well, when the demand for money is the highest (generally the peak of the Real Estate Market) is when the Federal Reserve starts to see inflationary numbers such as lower unemployment, and rising consumer prices. You see housing drives the US economy as most products and services are designed for your home and when there is a high demand for these goods and services you will see prices start to rise. That will trigger the Federal Reserve to raise interest rates to combat the possibility of inflation and the devaluation of the dollar. I know this is a whole bunch of economic principles here, but this is how the business cycle works. I could go into specific details as I hold a degree in economics, but this would bore you and I want to inform you so you can be ahead of others that are not smart enough to read anymore.
As you see interest rates start to rise you will see almost an instant slow down in the demand for housing and goods and services as people can no longer afford to purchase the high-priced homes with high interest rates. This, in turn, slows the whole economy down. The Federal Reserve (the Fed) can’t possibly know how much interest rates should rise to slow the economy down to an acceptable inflation rate of 3-4%. The Fed will generally raise rates too high initially and slow the economy down too much then rates sag back down until the economy is stimulated again then they raise them to get to the right inflationary numbers. Since it is not an exact science we see volatility and this is where I believe we are at in the business cycle currently. The Fed has not landed on the right interest rate combination yet and thus we are seeing volatility in interest rates and coincidentally the Stock Markets as well. The Stock markets knows this cycle and reacts to it, as well, that is why we have seen record swings in the Stock markets in the last several months.
So, we know where we are in the “Business Cycle” and we have seen the higher rates and the Real Estate Market slowdown in the 4th quarter of 2018. Does this mean we are in for a bust? I don’t think a bust is in order, but I do see a slow down and a leveling off in Real Estate prices and in some cases a decrease in perceived values. Coincidently, this cycle has worked over a pretty consistent 10 year cycle with the slow down starting in the 8th year of each decade and going though the 9th year and slowly picking up with investors coming in on the 10th year. For example 2008-2010 was slow for Real Estate as was 1998-2000 and 1988-1990 and so on, history repeats itself. I am not saying that you should not buy Real Estate during these times I am simply pointing out the business cycle in Real Estate so you can be informed. There are always deals out there and with the right Realtor and Lender partner like MAE Capital Real Estate and Loan you can profit. With our experience you can make a plan to own Real Estate and not worry about the business cycle as interest rates are still low compared to history and there are some really good deals out there to purchase. So, beat the investors to the punch and get in the game with your first home or your 20th home, we are here for you. In our site you can look at properties currently listed on the MLS and get pre-approved all from your chair at home or work. Give us a call and let our experience help you plan your future at 916-672-6130.