By now we all know who the next President will be so what does this mean for interest rates and Real Estate? The first thing we all need to remember is that our government does not control interest rates it controls the information the Federal Reserve uses to determine the direction of the interest rate that the Federal Reserve (the Fed) controls and that is the overnight lending rate for Banks to borrow from the Fed. When the bank’s cost of money decreases it usually means that the banks will lower lending rates to the public. The Fed bases its decision on the direction of the overnight lending rate based on how the economy is performing. The President can’t control the interest rates, but he can control the economy so any changes that we might see happen will not happen until at least the 2 quarter of 2025.
The reason I say we won’t see any significant changes to the interest rates like we see in the Stock Markets immediately is simply that it takes time for an economy to go through changes. The Interest rates are set by the economy, not by policy. Policy can change the interest rates, but it will take time to show up. The Stock Markets rallied after the election as the Stock Markets are speculative in nature and the Stock Markets see the new administration to be more business-friendly and see that money will eventually open back up and flow more freely in a lower tax environment. We have to remember that the new President is not sworn in until January and it will take time to transfer power and get new people and policies in place. Then we probably won’t see the effects of the policy changes for months afterward. We are still in the same business cycle which means we must go through some pain before it gets better.
This current business cycle is one where we still have inflation and a contraction of the job market. This will not change overnight, so we need to be patient. Business cycles are generally not controlled by the government, but the government can have significant effects on it. The policies of the current administration will remain in effect until the new administration takes power. Once the new policies of the new administration take effect it could take months for them to show up in economic numbers that the Fed uses to control the rates. The wild card is that there are still 2 months of the current administration, and they still have the power to make changes to the economy in the short term that could last months into the new administration.
I do see economic hope on the horizon; however, we have to go through the business cycle we are in currently to get to the new one. This will probably be a bit painful as interest rates will still be in the 6’s and 7’s until we start to get to a place where they can go down. This place is where inflation is under control. We also must remember that Interest rates go down with negative economic news such as a recession. The Fed will lower interest rates if they think the economy needs to be stimulated, we are not there yet. This is why the Fed only lowered their overnight lending rate by .25% as was expected by the other interest rate markets. The Federal Reserve’s next meeting to determine if they will lower their interest rate will be in December. The time between now and then we will get to watch the data they will be using unfold in front of us and that is how economists make their predictions on what the Fed will do at their next meeting.
All this means that we will be in the business cycle for at least the next 6 months. In that time, we will be in this current cycle before any new policies from the government can take effect on the economy. So, I see employment softening still and I see inflation coming down as people don’t have extra money to spend on things to drive inflation up. I also see a softening of the Real Estate Market where it is changing from a seller’s market to a buyer’s market with the Real Estate prices slipping a bit in order for sellers to sell their homes. I do not predict a crash like 2008, but I do see a correction. I see mortgage rates dipping to the 5’s in the late 1st quarter of next year and that should bolster the economy. We will not see rates in the 2’s and 3’s again, in the near future, unless something drastic happens that is outside of the current business cycle. I hope this helps you with how this system works and you can plan for your financial future.
If you are reading this, you have a desire to out from a 40-year season Mortgage man what is going on with interest and the economy. We need to explore what the mortgage rates and the stock market are going to do when the Federal Reserve Bank lowers its Fed Funds rate. The Federal Reserve or the “FED” does not control mortgage rates, they control the rates that independent banks can borrow from the Fed and this in turn is the underlying cost of money. When the Fed lowers interest rates, they lower the interest rates that banks borrow from the Fed overnight or commonly called the overnight lending rate or the Federal Funds rate. This is not directly connected to mortgage rates it does lower the cost of money to the banks so the lower the cost of money to the banks the lower the costs can be pushed out to consumers in the form of Mortgage rates and other loans banks make.
That said, all indications from the Fed are that they are going to lower the Fed funds rate from a target range of 5.25-5.50% to a possible target range of 5.00-5.25%. This means that the rates banks borrow from the Fed will go down. The hope is that this will translate to lower mortgage rates. The Fed is expected to lower interest rates by .25%-.50%, and if this happens the mortgage market has already factored that into the current rates, so when they announce they are lowering interest rates and they lower them by .25%-.50% we will not see a major move downward in long=term Mortgage rates as the markets have already anticipated this move. If the Fed lowers the rate by .25%, we may see mortgage rates go up a bit and if it is .50% we may see a slight lowering of mortgage rates but no major moves downward. The most important part of the announcement won’t be the announcement of actually lowering the interest rates, it will be what they intend to do in the future and that will move the markets more than the actual move downward in September.
If the Federal Reserve sees strength in the economy, from the numbers given to them by the Federal Government’s Bureau of Labor and Statistics (BLS) they will probably only lower the rate by .25% if the BLS number indicates a weakening economy the initial move downward will more likely be as high as .50%. If the numbers look worse than they anticipated, they may lower the rates by a larger number and that would move mortgage rates lower significantly. I and others who have been watching the Fed for decades know that they are far quicker to raise interest rates than to lower them. This is why we anticipate a max movement of .50% which has been, for the most part, factored into the current mortgage rates.
Current conventional mortgage rates have lowered into the 6’s with the anticipation of the Fed moving to lower interest rates. FHA and VA home loans are in the low 6’s to high 5’s. I am not anticipating the Fed to lower their rate lower than .50% and the markets have factored that in as well so anything different from the Fed or an announcement that the trend will be to lower rates throughout the year will have an immediate lowering of mortgage rates anything less will immediately raise mortgage rates.
It’s Monday, August 5, 2024, and the Stock Markets worldwide have endured a significant sell-off. Why is this happening and what is driving this? How will this help Real Estate and how will this hurt Real Estate? What are the global ramifications here and how will it affect you and your finances? Those are just some of the questions I will be exploring.
The markets started the correction last week due to bad economic numbers. Those numbers were weak consumer goods orders and higher-than-expected unemployment numbers. These numbers are what the Federal Reserve looks to when they make up their minds on the direction of interest rates. Interest rates drive the flow of money for growth in an economy and they have been high for several years now. Higher interest rates have slowed the real estate market to crawl over the last several years. Fewer people have been able to afford a house with higher interest rates. So with less home ownership people are not spending money on goods and services for homes such as washers and dryers, home improvement items, and major remodeling projects. All the people who work for those support companies have been slowing down and now are laying off people due to a lack of demand for goods and services. The reporting numbers are severely lagged or even manipulated and when the markets finally woke up to the fact that things are not as great as the reporting numbers have said, then you have a correction and that is what we are seeing.
This correction is just beginning, unfortunately, as the stock markets have been held up artificially by certain big investment brokerages or bad government reporting numbers or both. The philosophy of the Stock markets of late has been to simply look to the government’s Bureau of Labor and Statistics that pump out unemployment numbers, Job Growth, GDP, and unemployment to name a few. When you don’t look out the window to see what’s really going on you can be manipulated. People and the markets are now realizing the truth and reacting to the truth. I fear that the monetary system is not far behind.
Traditionally, when the economy has little or no growth the Federal Reserve will lower interest rates to stimulate the economy by getting money flowing again. I firmly believe that the Federal Reserve will have to lower interest rates sooner than later. Although the next Fed meeting isn’t until September 18th I believe the Fed will take an emergency action by lowering interest rates before their next meeting. How much I can only guess l but I would guess by .25%-.50% to get money flowing again. The problem is that as stock markets crash and big companies have less money to work with they will have to start laying off people, which we have already seen in the large-cap companies and small-cap companies. As people lose their jobs, they will have less money to spend in an economy that has already been ravaged by inflation. Things will have to get a whole lot worse before it can get better.
The good news is that interest rates will start to come down again. This will allow people who have good jobs to refinance themselves to a lower payment. It will also allow businesses to borrow at cheaper rates to expand. This will not be immediate as Rates will not go down as rapidly as they probably should. In the meantime, we will all have to endure a correction that could be very painful for those who are retired or close to retirement. It will also affect those in the tech business with the invention of Artificial intelligence (AI) that will be cutting coding jobs for large tech companies. It will also trickle over to the monetary system affecting the dollar.
For now, sit back and enjoy the show, and don’t panic. If you are young, this will be a big deal for a short period of your life but over time everything will come back as history has shown. So, If you have a good job and stay employed through all of this you will have some of the best investment opportunities in Real Estate that we have seen in a long time. You probably will not see these opportunities until early 2025 so if you can save do so now you will need it. We are in for some very interesting times through this correction and the coming election cycle and the events unfolding in the world. Pray that our government doesn’t decide that War is the way out of this problem as that has been what our government has done for the last 100 years.
By the time you read this, I am sure you have read about what is happening worldwide with pending war. It appears that our own Government is provoking conflicts all over the world and at home for no reason affecting all aspects of business including the Real Estate Industry. At home, the Department of Justice now taking up a side against the Real Estate Industry. In addition, our own government, specifically the Department of Labor and Statistics is feeding us information on inflation and employment that is clearly wrong or manipulated. If you are not asking these questions you should be, as something is going on that is out of our control and is seriously harmful to all of us no matter which side of the fence you stand on politically.
Looking at the state of the world we must ask why is the United States provoking all of these conflicts all over the world? Our media has been telling Americans that it is Russia and China and that is just propaganda so why? The only conclusion I have for this is the US Dollar. The US dollar has been the world’s reserve currency since 1944 and is now being threatened by Russia and China as they are creating alliances with nations all over the globe to start a new reserve currency. You may have heard of the BRICS nations by now, which comprise of Brazil, Russia, India, China, and South Africa and many more nations have joined this movement over the last several years. Why would our government be concerned with this you may ask, it is simple, power and dominance is the answer. As it stands today, and it is changing rapidly, if you want to buy goods globally, specifically oil, you would have to convert whatever currency you have to dollars in order buy these goods. Those countries that have to convert are at an automatic disadvantage to the US Dollar. What Russia and China are creating is a system that would require the US to convert the dollar to another currency thus devaluing the dollar and creating a threat to the Central Banking system. This possibly is an explanation that makes the most sense logically. It makes no sense to make China our enemy when we literally import just about everything from China it is like we are biting the hand that feeds us. As for Russia they need Ukraine’s resources such as their gold and precious metals to back the new currency. Our government has been keeping all this from its citizens in an effort to hide the fact that all these conflicts are over money and that doesn’t fit their narrative. Again, this is not substantiated and is just a theory based on logic and what is going on in the world today. As we all watch to see what is unfolding the average American is being choked by inflation and is not being able to save or afford to buy a house with the high interest rates caused by the high inflation.
Another attack on the Real Estate industry, specifically of late, has been the lawsuits filed by prosecutors in certain states with regards to the way Agents are compensated. The National Association of Realtors (NAR) was recently found guilty of non-disclosure of buyer’s Agent’s commissions upfront as were several large National Real Estate Franchises and Companies. This has sparked confusion and frustration in the Real Estate community. The industry has been in the process of changing the way they disclose since the settlement by creating new forms and even more confusion for the consumer. Now the Federal Department of Justice, the DOJ, has begun to look at this further as they apparently don’t like the Real Estate Industry and we can only guess why. Yes, we are witnessing the weaponization of our government against its citizens or that’s what the actions look like. We are living in very trying times in the Real Estate Industry and these disruptions to our way of doing business is furthering the decline in the industry.
To further make things seem like we are living in a bizarre world the Federal Department of Labor Statistics is putting out economic numbers that both the Stock Market and the Federal Reserve have used for decades to determine the direction of the economy. These numbers have been indicating that inflation is under control or is at least cooling down, but what they are not telling you is that those numbers take out Food and Energy inflation, both of which we know have been going up consistently. People are feeling this in their everyday lives and have taken measures to keep themselves financially secure. I might say, many Americans are steaming mad as their ability to save and live a happy life has diminished with these economic times. In the mortgage business, persistent high interest rates have taken the majority of people out of the real estate market as they simply can’t afford a $3,500-$5,000 mortgage payment as they would need to show $10,000-$15,000 in monthly income to qualify for those payments and those payments equate to a starter home in California of $500,000-$650,000. This economy is not sustainable.
To conclude, I have been in the Mortgage / Real Estate Business for 40 years now and I have never seen the business as slow as it is now. I have seen the Stock Market crash of 1987, 2008-2009, and the pandemic crash of 2020 but what we are experiencing now is far worse and has been lasting for a more sustained time and no relief in sight. This Real Estate market and high interest rates have been declining since 2022 and with war on the horizon and more misinformation being fed to us daily, I don’t see an end. I like to be a realist in life and a logical thinker, however, I have only seen negatives and nothing on the table to fix the situation. I see both political parties as compromised as well as our banking system and with more bank failures on the horizon due to bad commercial loans this is going to take a bit to get through and I pray that we all come out of this as better humans and realize that we are all better united as divided we will fall.
2024 has started off with a bang with earthquakes and Tsunamis. On the first business day of 2024, the bond market gave back some gains from the last couple weeks and the Stock market was flat but still positive. If the first few days of 2024 are any indication of the year we will be in for some turbulent times. 2024 is also an election year so prepare yourself for a political ride that we have never seen before in history except for possibly in 1861-1865 (the Civil War).
This year will start off with a slow economy, and a slow Real Estate market as interest rates are still too high for the average person to afford to buy a home, especially in California. The Federal Reserve (The Fed) has vowed to lower interest rates if they see the economy start to decline. The Federal Reserve's Chief, Jeremy Powell, stated that there could be 3 times they consider lowering interest rates in 2024. This would be a great thing for Real Estate as more people could afford to buy a home. If the Federal Reserve does lower interest rates and you did buy a house in the last 2.5 years you would have an opportunity to refinance and lower your monthly mortgage payment. If you have a $500,000 mortgage at 7.5% and the rates move down to 6.5% this could save you $336 a month in your mortgage payment and for most families every penny counts in this economy.
Watch the election antics as this will also drive interest rates. If it looks like people will be electing more of the same types of people to Congress and the Senate and the Presidency be prepared for more oddities like we have seen since the current administration has taken office. We the people in the Real Estate and Mortgage industries know what has been done to the Real Estate Market over the last few years due to inflation caused by giving away taxpayer funds to other countries and stimulus checks and the general devaluing of the US Dollar. You will not hear the truth on your TV or radio about what has really happened to the economy, so I am glad you found this article to see what has been done to the Real Estate Industry due to the mismanagement of the monetary system by our government. This election will probably be the most pivotal election of your lifetime to determine the direction of the United States States. I am not going to tell you who to vote for as I still believe people have the right to choose but some don’t as you see playing out in current news.
One giant issue that is failing to make the news that is affecting the dollar is the advent of the BRICS money system which has vowed to take the US dollar out of being the world’s reserve currency. BRICS is Brazil, Russia, India, China, South Africa, and now many other nations have joined this movement powered by China and the Yuan (Chinese money) to become the new world’s reserve currency. This is slowly gaining traction as most countries are tired of Americans running the show and flexing their power all over the globe. The BRICS system is poised to bring the US Petrodollar down which is how all oil has been forced to be purchased over the last almost century. This means that until now all other countries had to convert their currency to the dollar to purchase oil which has made the dollar dominate and has allowed America to thrive over the years. This is also a major reason why our military is in the Middle East currently and could spark World War 3, which is another topic that could have strong implications for the US economy. If the BRICS money takes over as the world's reserve currency the US will be forced to convert the dollar to the Yuan to buy oil which could further devalue the dollar causing even more inflation for the U.S..
This is one reason why with the high interest rates we have seen we have not seen Real Estate values crash as inflation or the devaluing of the US dollar is keeping Real Estate values high. We should also be aware of the debt the country has accumulated as America has over $33 Trillion in debt and until now it has not been a big issue as the US has controlled the world markets, if that changes then the dollar will be further devalued and we will have more inflation and with inflation comes higher interest rates. Some would argue that America just needs to print more money and if that happened it would further devalue the dollar and cause even more inflation and more inflation means higher interest rates. At this point in American economics, we are at a tipping point, and with the current path we seem to be on a collision course with monetary disaster unless we get spending and money giveaways under control, if not we could run into serious economic problems that I don’t want to get into in this piece.
The economy is going to be the biggest issue of 2024 and that will directly affect the Real Estate markets if it is not managed properly. Real Estate values will be in line with inflation this year and interest rates will have little effect on Real Estate values as inflation drives interest rates. Interest rates are the Federal Reserve’s only way to combat inflation. The theory is that as inflation increases the Fed will increase interest rates to slow consumer and business spending and thus slow the demand for goods and services. What is not being addressed is the devaluing of the US dollar by other countries which makes all the goods we get from other countries more expensive, especially oil. To conclude, I believe that 2024 will be a very volatile year for Real Estate and we can pray rates come down enough to get more first-time home buyers into homes.