Blog with MAE Capital

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 1^st 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 18^th  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.   

What is going on with Real Estate and Interest rates?  This is a question that many are asking right now, including myself.  I started in the mortgage business while I was in college in the early 1980s, so I have seen a lot about the industry.  My father was in the mortgage business before me so you could say I grew up in the business.  I received my bachelor’s degree in economics and started full-time in the mortgage industry in 1986.  Things have changed over the years in the business, but the core of the business has remained the same.  When I started in the business there were no computers and everything that is now printed by a computer was hand typed and there were no fax machines or cell phones at that time either.  From a technological standpoint, there have been many changes but the way we qualify a potential home buyer for a home loan has not changed.   The Stock Market’s DOW Industrial average was around 2500 in the early 1980’s so things have changed there as we are over 38,000 today.  I have observed many changes, some for the good and some not so good but overall up to this point in my life I can say the business cycles have been pretty consistent.

What I am seeing now is something I have never seen, nor did I think I would see in my lifetime.  Like I said above the business cycles have been pretty consistent over the decades until now.   With all the economic data I see and more importantly, what I am observing is happening right now is scary.  I have always trusted the economic numbers that have been spoon-fed to us from the government until now.  Yes, I have lost confidence in the system I helped create throughout the years.  When the executive branch of our government stands in the public eye and lies directly to us I have to believe that everything that doesn’t fit their agenda is a lie and that is very sad for America.   When I hear the powers at be say that Bidenomics is working and America is thriving I have to call B.S.  We all know that things cost more than ever at the store, at the gas pump, and with housing so why is it that the powers at be say otherwise?  I try my hardest not to get into politics on this blog but is has gotten to the point that I have to bring it into the conversation as this is why the Real Estate markets are sluggish and interest rates remain high.  

My observations in the Real estate markets are that people want to buy but with prices so high and interest rates that are too high, they can’t buy.  Inflation has made the cost of everything go up and the value of the dollar goes down.  So, when prices of Real Estate should have gone down with higher interest rates and lower demand, we have seen Real Estate values stay the same and, in some markets, continue to go up.  The reason for this is that inflation has caused the dollar to go down so much that housing prices have stayed the same which means that they have gone down as inflation has eaten away the buying power of consumers.  To put in in other words as inflation makes the price of things increase it also devalues them in that fewer people can afford to buy them.   What higher interest rates should have done without inflation is to cause fewer people to be able to afford housing thus slowing the demand and making sellers of real estate have to lower prices in order to sell.  As we have observed with the higher interest rates over the last 2+ years Real Estate prices have not reduced as they should have or were intended to do.   They have stayed steady or have gone up and this is due to the inflation or the devaluing of the dollar which is the same thing.  

What is going on here, you ask?  It is pretty simple from my standpoint, but I am not sure our education system is actually teaching these concepts for the younger generation to fully understand.   To be clear, how the dollar devalues is simple economics.  The government is spending more money than ever, thus putting more dollars into the world economy.  When you have an oversupply of anything the value of that item will go down and that is what we are seeing with our US Dollar.  The national debt has risen over the last 3 years from $30 trillion to north of $34 trillion consumer debt (Revolving debt credit cards) has risen to historic highs of over $1 trillion in the US alone.  This means that every Citizen of the US bears the liability of government spending.  When we send Billions and Billions of US dollars overseas this becomes a double whammy in that there more dollars are in circulation but no benefit to the American Citizen.  Ironically a lot of the money the US is sending overseas is to protect the borders of other countries while our borders are wide open.  This poses many problems for our economy, the most obvious problem is that as more dollars are pumped into circulation the value will continue to decline, thus inflation.  You may have heard that” core inflation” has come down which we all know to be a lie, however, core inflation is the price of those goods that exclude energy (gas and fuel) and food prices which is what most middle-class Americans use the most.   When your cost of living goes up so high that you can only afford food and housing you have lost wealth and wealth potential.  

How do we get out of this cycle of lies and deception from those we used to trust to give us the truth and who are constantly lying to us?  I would say vote them out and start over, however, deception, lies, and corruption have taken over the media, social media, and the voting booth.  You see when the average citizen loses confidence in the voting system, we have lost our constitutional Republic.  When you hear that the United States is a democracy it is not, it is a Constitutional Republic, that is the kind of rhetoric we are hearing that is either a lie or something they want you to believe.  I am tired of people blindly believing everything they are told; we need some real changes quickly or our way of life we grew up with will be gone forever.  We as a nation are as close to a tipping point as ever before in our history and my fear is that with spending for foreign wars, out-of-control illegal immigration, and corrupt leadership we are very close to something we all should fear.   What we need to do is to come together to see what is happening right before our eyes and collectively do something about it.  If we don’t stand united, we will fall divided.  

To conclude, the Real Estate and Mortgage Markets are being drastically affected by the ridiculous monetary policies put forth by the current administration.  With out-of-control spending outside of our own country, cutting oil production in our country, and starting foreign wars we stand to be in this type of crazy economy for a long time without some significant changes.  My next big concern will be a crash of the stock market due to American companies not being able to profit like they have been able to in the past.  We must also watch the emergence of the BRICS monetary system that Russia and China are spearheading this could cause further inflation by the devaluing of the dollar on the world stage and if the BRICS system replaces the US Dollar as the world’s reserve currency, then we have more problems than I can write here.   This has not been covered in the media and is one of the biggest threats to the US Dollar in our lifetime.  This could also be one of the underlying reasons it seems we are marching into World War 3 to prop up the dollar.  To think how many people will die in a war so the US Dollar is protected when other moves could have been to avert this situation.   This is a very pivotal time in our history, and it seems that our media is more concerned about who’s feelings are getting hurt rather than the hard-hitting stuff we all know is going on and we should be concerned about.  So, if you are reading this I hope you understand the magnitude of what I have written and I pray it doesn’t get censored in our so-called free society.  

PS

I fear we may have gone too far with out-of-control corruption to the point where the economy as a whole is suffering from incompetent leadership.  If we don’t get immigration under control we will have too many people trying to get the same jobs and the same housing that American-born people need.   As it is those same immigrants are getting government checks or taxpayer money to compete with natural Americans for housing, food, goods, and services not to mention that these people have not been investigated properly at the border so there may be bad people that could hurt Americans or damage property or worse we don’t know.  This is causing a higher demand for housing and the longer it goes on the more it will hurt the American people.  Crime is also rising in the cities where these migrants have gone and is getting worse every day.  

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.  

A Loan Officer is Licensed by the National Mortgage Licensing System (NMLS).  This holds true across our great nation.  A Loan Officer can do multiple things but our discussion today will be for first-time home buyers and move-up buyers looking for their primary residence to live in.  This type of home loan is called a Qualified Mortgage and certain rules have to be followed by your loan officer to stay in compliance with the law.  If you are looking for an investment property you are not a qualified mortgage home buyer as under the law and you are not protected under the same rules as a primary home buyer.  When finding a Loan Officer you should know these basic facts of the law so it can benefit you.  If your Loan Officer doesn’t even understand these basic rules of the industry then you might need to find one that does.  Of course, there are many factors that we will be covering to pick the right Loan Officer for you.

 So how do you know what Loan Officer or Company to pick when shopping for a new Mortgage?  The first thing everyone should know is you have to feel comfortable with the loan officer.   You have that little voice in the back of your head and if it is screaming at you to not trust the person on the other end of the phone that is your first sign.  A little knowledge of what a Loan Officer actually does goes a long way.  Trust your intuition with the person on the other end of the phone as we are in a mortgage market right now where every deal is important to have as it is so slow and interest rates are on the rise.  Loan Officers are having to compete like no other time in the industry so some of the things that they will say are misleading or bait and switch.

I know this as I have clients telling me daily that they have been quoted interest rates far below where the actual market is.  For example, you are shopping for interest rates for a home you will be living in, or as we stated above a Qualified Mortgage.  You are getting quoted consistently in the low to mid 7’s for interest rates based on your credit qualifications.  When you call and talk to a Loan Officer that tells you that the interest rates are in the mid to high 6s anybody’s first reaction would be to think they have found the perfect deal.  The trap here is that you have been fooled but you don’t know it yet.  So you gather all your documents, complete the loan application and deliver it to the loan officer you talked with earlier.  Then you wait for all the inspections to be done on the house you are in contract on to see what might be wrong with the house and you become distracted with the house and not the financing.  A loan officer understands how this process works so about this time when the inspections start to come in, the Loan Officer sends out the disclosures, required by law, and you realize that the terms are not what you were told on the phone.  So you call the Loan Officer and he or she tells you that things have changed and that this is your interest rate which happens to be in the low to mid 7’s.   So you think “Oh well I don’t want to have to go through delivering all that paperwork to another lender so I will just stay here.”

If this happens to you, you should run as fast as you can to one of the Loan Officers you talked to that you felt comfortable with as if they lied to you in the beginning to get your business what will stop them from lying more and possibly getting your loan declined because they were untruthful to the processor and the underwriter.  Because the actual people who are working on your loan may not trust that loan officer because they know they are not a truthful person.  This kind of deception is called the Bait-and-Switch sales technique which is highly unethical, but people will do it to get the business in the door.  

When shopping for a Mortgage you should always go with the Loan Officer who you are comfortable with and although they can’t match that low rate that was told to you by the untruthful Loan Officer, you can trust that they will get the job done for you with an interest rate that is real.  This brings me to the fact that if you are a home buyer, with good credit and you are looking for a home to live in you are not only protected by the law but you now know that all Lenders and Mortgage Brokers have to get the interest rates from all the same sources like the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation, FHLMC, or Freddie Mac.   So if you are being told something different be very suspect as all Lenders that are dealing with FNMA and FHLMC will be in the same basic interest rate range.  Some lenders or Mortgage Brokers can be slightly better in interest rates only because they may have less overhead but there should only be at the most a .5% difference in interest rates between all lenders and Brokers on any given day and that may be high.  

The moral of the story here is that if it is too good to be true it usually is.  Your Loan Officer should be your advocate through the process.   Your Loan Officer will be integral in helping your loan get through the process as fast and efficiently as possible.   You will be in contact with your loan officer once you have found a house almost every day so you should have a good working relationship with them.  I also would be looking for energy in my Loan Officer as it takes a lot of energy to get your file through the system fast and efficiently.  Your Loan officer should have a working knowledge of how your Realtor does his or her job, in fact, if your Loan Officer also holds a Real Estate License you will know that he or she has an advanced knowledge of how the Real Estate Process works.  At MAE Capital Real Estate and Loan, all of our Loan Officers will have both a Real Estate License and an NMLS license.  Be careful of Credit Unions and Banks as they are not under the same rules that we are so they generally have slower turn times and Loan Officers that do not hold Real Estate Licenses and in some cases, you may be talking with someone at a bank or credit union that doesn’t hold any license.  We are here to help and we will not mislead you in the process of buying a home in fact we don’t even get paid until we close your transaction so it is in all our best interests to get your transaction closed as quickly and efficiently as possible.       

The title says it all if you know what you are looking at. A little history first then we will dive into the relationships between BRICS, the Dollar and Interest Rates and it will wake you up if you haven’t been watching the world.  BRICS is the formation of a new currency based on precious metals formed to take on the dollar as the world’s new reserve currency, we will get more into that in a minute.  The Dollar is our currency in the United States and is the current world reserve currency.  Then how do interest rates play into this equation you ask?  Interest rates may not react now to both of these currencies now but they will very soon.

BRICS stands for Brazil, Russia, China, and South America, they were the original nations that signed on to use this new currency.   Since the formation of BRICS, Several other countries have signed on to use this currency,  countries such as Saudi Arabia, Syria, Afghanistan, and several others countries.  What this means is that these countries will use the BRICS currency as their reserve currency, not the US Dollar.  This has not materialized yet but it is in the works.   If this new currency catches on and becomes the world’s reserve currency and not the dollar that could have to reach economic consequences for the Dollar.  If you are paying attention to what is happening in Ukraine right now you have to understand that this conflict is not about Ukraine’s sovereignty from Russia it is about money.  Money has driven almost all wars in history and this one is no different.  

The Dollar has been the world’s reserve currency since World War 2 and before that, it was the Pound Sterling (British Currency).  The Dollar was originally backed by Gold and Silver.  When the US was limited to gold and silver it could not expand as fast as those that held the gold and silver wanted it to so it moved from a currency that could be backed by precious metals to the Federal Reserve Note we have today.  That transition happened in 1971 under President Nixon.  The US moved to what some call a “Petrol Dollar” which is a dollar backed by oil.  Again, we have seen wars fought over oil now, why? Money.  Today’s Dollar is really only backed by debt and that is why the world sees the dollar as a dead currency where the debt has exceeded what a normal mind can grasp.  $33 trillion dollars is a number that is not quantifiable to a regular person, numbers like that are for mathematicians.   The dollar has been the great magical vehicle for decades with people believing it has actual worth and that belief has allowed the US to become the largest superpower in the world.  

Interest Rates, how does it play into the currency game?  This one will take a history lesson as well.  Interest Rates, by definition, are the cost of money.  Interest Rates in the US have been controlled by the Federal Reserve and the Federal Reserve also controls the Money Supply.  We can now see the relationship as the Federal Reserve controls both the supply of Dollars and the cost of the Dollar.  The Federal Reserve system has been under fire lately with the way they have managed this relationship as we have seen interest rates soar over the last few years.  With the dollar as the world’s reserve currency for so long the Federal Reserve Bank has been lucky that countries like China and other countries that hold a large stake in the US debt have not called it due.  If the world moves away from the Dollar as a reserve currency you will see the devaluation of the dollar worldwide and those still using the dollar will see it be devalued on the world stage.   A devalued dollar will create inflation and the cost of the money will have to go up to offset this.  The cost of money is interest rates.  

This is just a quick view of those things to come and can also explain what is going on in the world today. If you connect the dots you can see why BRICS has come to fruition.  War in today’s world is being fought on the economic front not so much on the battlefield.  If the BRICS currency takes over, the dollar will devalue and the cost of things in the US will skyrocket.  If we have high inflation we will have high-interest rates.  When you look at the conflict in Ukraine understand it is not about Ukraine at all, in fact, if you look at Ukraine you will find that their government has been corrupt for decades.  If you research President Zelenskyy you will see he started off in life as a comedian and actor and worked for a TV station prior to being “elected” President of Ukraine in 2019.  Zelenskyy’s net worth is estimated to be between $20 and 50 million US dollars, and some estimate it far greater than that.   Meanwhile, the US has recently sent Ukraine over $120 Billion in aid.  These are facts; you can even google it and see that the search engine has not yet closed the door on this information.  It is on top of this administration’s list to keep the dollar as the world reserve currency to keep America the strongest and richest country in the world.  When you are watching or listening to the news, however, you find your information, keep money in mind when watching as that is the underlying cause for almost every conflict in the world is money.   I tried to keep this to facts that we know, but I think if you peel the onion back a bit more you will see things and understand things that you may not want to have knowledge of.  There is a lot more to this that I can’t possibly go into for this short blog post so keep your eyes and mind open.  

By now you probably have heard that interest rates have risen to a 20-year high, but how exactly is this affecting Real Estate sales and prices?  The Federal Reserve (the Fed) raises interest rates to slow demand for goods and services as with higher interest rates things cost more over time.   The Federal Reserve does not directly affect mortgage rates as the rates the Fed control are only the rates that banks borrow from the Fed.  This makes the cost of money to banks cost more so Banks raise their rates to the consumer to cover the increased costs to them.  Since consumers get loans from Banks to buy cars, homes, consumer goods, and services the costs for all of it go up.  In the mortgage arena, we have seen rates go from the low 3’s in January of 2022 to the low 7’s currently.

It should be obvious that a consumer will be able to buy less of a home in a high-interest rate environment, but home buyers don’t really understand how much it actually affects their buying power.  An example would be a couple who has been making an income of $100,000 combined with a normal debt load of a car payment of $500 a month and student loans of $250 a month.  This couple could afford a house with a 3% mortgage rate and 5% down at $561,000 sale price.  At a 7% interest rate the same couple can now only afford a house priced at $356,000.  This a $205,000 difference that has occurred in less than a year.  This will hold true when qualifying for  auto payments, business loans, and all loans to buy goods and services.  

So with the diminished buying power of potential home buyers, you would think that Real Estate values will go down to accommodate the higher interest rates.  You would be right in your assumption.  This holds especially true in the higher priced homes where the people that were qualifying for a million-dollar mortgage can now only qualify for a $700,000 mortgage.   Home sellers are having to come to grips with the fact that their home is not sellable at the same price it would have been a year ago.   With older folks looking to retire in the next 5-10 years they are seeing the value of their Real Estate portfolio go down, and this may hold off their plans for retirement and holding on to their long-term jobs not making room for younger folks to fill the gap.  Furthermore, the older generation has seen this before so they will be extra cautious with their money going into retirement and possibly not selling their family home to downsize for retirement as they may have originally planned.

The higher interest rates are pushing Real Estate values lower and this is making investors worried to the point they are holding back investing in Real Estate taking out a whole segment of Real Estate Buyers.  As prices decrease you will be seeing appraisals come in lower-than-expected making selling a house more challenging when the sale depends on an appraisal.  Those particular sales may fall through if sellers are not willing to lower their prices and eventually, if they need to sell, they will have to sell at a lower price.  If interest rates continue to go up, and it is looking like this will be the trend, prices will have to continue to go down to accommodate those that can no longer afford to buy in the same price range as the lower interest rates would have allowed them to.   The higher rates thin out the potential pool of home buyers as their buying power has diminished and those folks looking to move up by selling their existing home and buying a bigger one have dried up as well.  

From a lending aspect, as rates rise, lenders know that the home values will be decreasing so the appraisal is going to be a much more important part of the transaction.  FNMA and FHLMC will be cracking down in different markets where they know the prices are softening faster than other parts of the country, typically in higher-cost areas like California.  Since MAE Capital Mortgage also does Private Money lending, we are seeing private individual investors who actually lend their own money to others, tighten up their requirements as well.  This means less available funding for fix and flip programs, After Repair Value (ARV) programs, investor buy and hold programs, commercial funding, and more.  Talking about commercial funding where that market has been killed essentially by COVID and Amazon coming in to fill the gap, has gotten even worse.  As investors see the rates go up, they are less likely to buy or lend their money for Real Estate of any kind.  

To conclude, higher interest rates make it more difficult for home buyers to buy homes that fit their needs.  High-interest rates make home values have to come down to be able to sell their homes.   Higher interest rates make the desire to invest in Real Estate and Real Estate Notes and Deeds a whole lot less.   Higher interest rates make commercial lending even worse and make commercial values continue to decline.  So, all in all. higher interest rates are not good for Real Estate values, resales, investments, and rehabilitation of real estate.   If you are a potential buyer of Real Estate, you need to make sure your offer is a bit lower than the current market supports as prices will continue to fall as rates rise.  If you are a potential seller of Real Estate, do it now before rates go even higher and be flexible in looking at lower offers, if you are not flexible you will not be able to sell your property in this crazy Real Estate market.   On the bright side if you are well qualified first-time home buyer it should not matter to you what rates are so long as you can afford the payment associated with the house you want to buy.  As a first-time homebuyer, you now have more inventory to choose from and if you buy now and interest rates continue to go up you have a low mortgage and an affordable payment, when interest rates go down in the future you can always refinance to the lower rate.  So don't be afraid of rising interest rates as there is no perfect time to buy real estate but what I have seen over the long run owning is far better than renting so do it now and join the club of home ownership and let MAE Capital help you with buying your home and financing it as when you bundle with us you get perks like money for closing costs and an easier experience.  

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.  

“ I heard the market was red hot and homes are selling for more than the asking price”  this is what we are hearing daily from our clients.   Is this true anymore or is something else going on now?     All you hear on the TV and Radio is that the Real Estate Market is red hot, but is this really true?  In my 37 years in the Real Estate and Mortgage business, I have never seen a market quite like this one we are experiencing.  I also hold a degree in economics and have not seen anything like this in history. So what’s going on, one minute things are going crazy with low interest rates and more buyers than sellers.  The next minute everything slows down.  

This is happening across the board, interest rates are still at historic lows, but it appears everyone that has had the opportunity to refinance and take advantage of the low rates has done sone so.  Or is it that, like COVID, we are about to experience a second wave of people refinancing and buying homes.  We have never seen such a market in the past so there is no real model to judge this on.   But we have seen a dramatic slow down in home buying and refinancing over the last 3 months.  In California, they lifted the mask mandate, and it appears those that have been locked down decided to all go on vacation at the same time.   

We generally see a summer lull in Real Estate, however, this one is far more pronounced than ever before.   It has me and others asking if this lull is just that or is it something else?  I do see this as the market seeking an equilibrium point, not an all-out bust.  I have seen big news in the markets before and the way the markets tend to react to this is by over-correcting on both sides.  I would liken this to stretching a rubber band and letting it go, it will spring up then back down then reach an equilibrium point.  Right now, in the real estate market, we are seeing a bounce down or a slowdown after it was super-heated.

Another factor that we have not seen before is that California was shut down for 15 months and people were told to stay inside and not travel.  In a normal year, people would travel all time of the year but the last year and a half have been far from normal.  What we saw during the pandemic was people staying home not traveling, so when they were told they could now go out and about they did and they are still are taking vacations and traveling not thinking about Real Estate or their mortgages.   Couple that with their kids being out of school they are taking full advantage of the time they have out of their houses seeing family they have not seen in months and enjoying the outdoors while the weather is good.  

Understanding how humans think is a big part of economics.  So as schools reopen in August and kids head back to the classrooms that will leave the parents back home and working with the time to think about their living situation and their financial situation.  Coupled with low-interest rates that the Federal Reserve says they are keeping low until 2023 I believe that the Real Estate market will pick up again by the end of August and into September, but it will not be at the pace we saw during the height of the pandemic thus the bounce.  Another interesting phenomenon that will be discontinued in September is the extra $300 a week in unemployment benefits.  This will send people back to the workforce, but will the economy be able to accept all of these long-term unemployed folks that took advantage of the system?  As an employer, I would not hire an able-bodied person who chose to stay on government assistance rather than work as that shows me laziness and I think this will be a big issue in the high-end job market.  Entry-level jobs like Walmart, retail jobs, and restaurant workers will be happy to take these folks back into the workforce as those workers can easily be replaced if they don’t work out.  But I digress, those entry-level workers will not be homebuyers in the immediate future but having them back in the workforce will allow management and owners to realize a better income level so those folks will be the benefactor of the ability to purchase real estate.  So my crystal ball says that by September we should start to see Real Estate pick back up for all the reasons that are not the standard reasons for Real Estate to boom or bust.  To get started today and beat the rest of the crowd call one of our Real Estate Professionals to get pre-approved for a home loan and start your search as new listings hit the market you will be there first.  If you have been waiting for your credit score to improve before refinancing start now ahead of the crowd Interest Rates are still in the 2’s and 3’s.   Call MAE Capital Real Estate and Loan to get started at 916-672-6130.

Ok we are a little over 2 months now since California shut down (March 16) so what is going on with interest rates?  Interest rates are great let’s just start there.  Interest rates are in the low 3’s and high 2’s currently.  So what is driving interest rates, you would think the answer would be easy, however it is far from easy.  There are many different factors that will determine what your interest rate will be and it will vary from person to person based on there credit scores, down payment or equity, cash back verse no cash back, loan size, loan program, fees waivers, and list goes on.  If you hear an advertised interest rate that is really low it probably does not pertain to you or what you would want from your home loan. Interest Rates are also geographical meaning that depending where you live in the United States will determine your base interest rate. So how are rates calculated and how do they vary from lender to lender.

First lenders across the nation give California a little higher interest rate than the rest of the nation to begin with.  This is due to the fact that California home loans tend to pay off faster than other parts of the nation.  This affects interest rates in that the longer a borrower will hold on to their current mortgage the more interest a lender can accumulate over time.  In California people tend to move more often that other parts of the country making the amount a lender can make on interest over time less so in order to compensate they raise the initial interest rate a bit.  So if you are hearing, on the news, that interest rates across the nation have come down and they give you an average rate you can rest assured that California will be on the high side of the curve. 

The next determining factor or factors that determine the interest rate you will get is your credit score(s).  When a lender is pricing your loan, they have to use the low mid-score of a married couple and the mid credit score if you are single.  When your Loan Officer (MAE Capital Mortgage)  prices your loan with lenders across the country we will have to have your credit score and the amount you are putting down and other factors in order to get the rate that fits you specifically then we will shop for the best loan scenario.  It also makes a difference if you are choosing a mortgage that will pay off bills in other words if you take cash out of the equity of your home on a refinance it will also increase the interest rate a bit.  When you hear a lender advertising that they will pay off all your bills with a refinance know that is costing you a little bit more to do that.  I would not discourage this just be aware of the increased costs even if you have 800+ credit scores the interest rate will be a bit higher.

If you are one of those who love to shop around to find the best interest rate you had better be prepared to give your exact credit score, down payment or equity position that is accurate as a bare minimum.  Here at MAE Capital that is exactly what we do on every one of our loans as we are Mortgage Brokers that hold both a California Department of Real Estate License as well as the National Mortgage Licensing System (NMLS) license in order to be able to offer rates from lenders across the nation.  Not all lenders are created equal so be aware that rates will vary from mortgage company to mortgage company and that has to do with their overhead requirements.  The more people a lender has to employ the higher the cost for that lender to originate a home loan.  A Mortgage Broker will have less overhead, in most cases, than a Mortgage Banker or a Bank who will underwrite and fund their own originated loans.  The reason why a Mortgage Broker will have lower rates is the fact that they can shop the entire nation for lenders with the best rates and programs where Banks and Mortgage Bankers will only have their own set programs offered by there company.  Mortgage Brokers also get what is called a wholesale rate verses a retail rate and that low rate is pushed to their/our customers. 

The type of loan you choose will have a different rate than other loan types.  A loan type is a FHA Loan, Conventional Loan, VA Loan, Jumbo Loan, Non-traditional loan, Private Money Loan, USDA Loan, CALHFA Loan, and more.  All of these loans will have different rates associated with the risk they carry the higher risk loans, such as Private Money or Hard Money Loans carry the highest rates.  Again, if you hear an advertisement for an interest rate or program know that what you hear is not what you will actually get, in most cases.  For example; we have a lender that we sell loans to that has a program out now that has interest rates in the 2’s, but you have to have the perfect scenario in order to qualify for that program such as 750 mid credit score down payment or equity greater than 20% of the value or purchase price of that home, if you fit the parameters you win and get the rate.  But if you are trying to take cash out of your home to pay bills off then suddenly you don’t and most people only hear what they want to and when they hear rates are in the 2’s they tend to pick up the phone and call around.  Another factor that is currently changing the interest rates is the fact that many people have listened to the media and have stopped making their mortgage payment during the pandemic this not only hurts them but it hurts those with good credit and never being late on a mortgage.  With people not making their payments during this pandemic it is hurting those that are, and are making higher interest rates.  You see lenders have priced in the profit from collecting mortgage payments for the origination of a new loan before the pandemic and now they simply are not so we are experiencing higher rates because of this.  One phone call to MAE Capital Mortgage Inc. and we will be able to run your credit while we have you on the phone and will be able to give you an accurate interest rate.  I hope this blog helps people to navigate through all this and we are here to help.  Give u a call to get your pricing today at 916-672-6130. 

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.  

It’s March 2020, not yet spring but in California it is always spring like weather.  Do you know what your house is worth this year?  Have you thought about selling and buying another home?  This might be the perfect year to do just that.  Why, you ask?  Well when the earth the stars and the moon all align you should take notice.  The interest rates are at historic lows would be the first good reason.  The second good reason would be that our economy is at full employment (Full employment is when the unemployment rate is less than 4%).  The third and most important for sellers is that the housing prices are still high, and we have not seen any correction in prices.

Interest rates are important for a variety of reasons.  When you are selling a house, you want the rates to be as low as possible so more potential buyers can qualify your house.  Low interest rates also provides a sense of security for home buyers when they are shopping.   Low rates also create a sense of urgency with potential buyers as they don’t want to miss the opportunity to get a low interest rate.  At MAE Capital Real Estate and Loan having control over both the Real Estate and the loan process can further save potential buyers and sellers as we will give buyers money towards their loan to lower their interest rate even further when we represent a buyer and do the loan.  With Rates so low putting your home on the market sooner than later will get you property sold faster as the inventory is so low currently.

In addition to low interest rates Americans are fully employed according to the labor department. So, with the majority of Americans employed in this booming economy there should be more potential home buyers in the market today.  These young buyers have more information at their fingertips than ever so they know that rates are low and that they can afford to buy.  In a market where most people are employed wages tend to be a bit higher so employers can keep those employees they have and not lose them to their competition, thus keeping job security and higher wages to potential home buyers.   This sense of job security is also making existing homeowners feel more comfortable with their finances and are exploring the possibility of selling and moving up.

We have not seen the influx of sellers yet as most potential sellers like to wait until spring to put their house on the market traditionally.  Those that make the move early will reap the rewards from a quick sale at the top of the market if their house is price properly.  All of this creates stability in the Real Estate prices as the current supply is less than the demand which usually means that prices should increase,  We have not seen the increases yet as we are still seasonally stagnant with buyers waiting for the spring inventory to hit the market.  With that said if you are thinking of selling your home this year it would be prudent to get your home on the market as soon as possible with rates low and full employment.  Here at MAE Capital Real Estate and Loan we are here to help.  We have programs for first time home buyers, we have the lowest rates in the market on home loans, we  bundle our services to save our clients money and if we list and sell your home represent you when purchasing your next home we will kick in money to lower your payment even further.  Give us a call (916-672-6130) or check out our site and download our App. 

Interest Rates have been on the rise lately moving up and out of 3’s and 4's and into the 5's for 30-year fixed rate loans.  The reason for this can be viewed as good from the standpoint of our economy but bad as you qualify for less of a home loan.  The reason the Federal Reserve (the Fed) raises interest rates is to slow down inflation in prices of goods and services is due to a higher demand for those goods and services.  The reason the demand for goods and services goes up is because consumers have more money to spend with better paying jobs.  When you finally hear that the Fed is raising interest rates you, most likely, have seen an increase in pay in one way or another.  The increase is a reaction to events that have already occurred and is designed to slow the economy down. 

When the Fed raises interest rates they are not raising your interest rates directly they raise the Fed Funds rate which is the rate that banks lend to each other.  In turn banks raise rates to consumers on mortgages and on a positive side they also raise the interest rates on savings accounts.  With higher mortgage interest rates your buying power diminishes for goods and services and housing.  An example of what higher interest rates do to your Real Estate buying power would be; if your household income is $100,000 annually and mortgage interest rates increases 1% it will diminish your buying power by $60,000.  Multiply this by all of America and you will definitely see a slow down in the amount of people that can qualify for financing to buy homes.  However, if your income increases faster than interest rates it won’t really affect you.   This would hold true for the 25-45-year-olds who are in careers that have a high growth rate.  For those that don’t have high growth rate jobs you might get priced out of buying a home or must settle for a home in a lower price range.    

The Federal Reserve will stop raising interest rates when they see inflation slow.  This is not an exact science of regulating the economy through interest rates but it has been policy since the 1970’s.  Most of the time they end up over tightening and the economy goes into a little recession then bounces back.  This tightening and loosening of interest rates will continue until the Fed can find other quicker ways of identifying the triggers to inflation.  With a strong economy currently and with gas prices rising and housing prices rising, and the rising prices of goods and services it looks like we should be in for higher interest rates for at least the near future. 

The Fed has come out publicly and said that they intend to continue to raise rates into early 2019 unless the economy shows signs of cooling off.  We are seeing rising gas prices as well as rising food prices so the likelihood of the Fed to continue with it’s rate raising campaign is still pretty good.  Housing prices have started to level off with decreased demand for the high priced housing across the nation.  I don’t see interest rates coming back down to the levels they were at this time last year until the economy slows.  If you are in the market to buy a home here at MAE Capital Mortgage we have a program where you can lock your loan in while you are shopping for a home.  This will allow you to look for a home without the pressure of rising rates.  This is called our Lock and Shop program.  We can provide this service for any home buyer in California so if you are in the market to buy a home this could potentially save you thousands of dollars.  Call us today 916-672-6130.