Blog with MAE Capital

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.

As a consumer you might be asking yourself why loan officer compensation is important to me.  The reason Loan Officer Compensation is important to you is simple and it boils down to your monthly payment.  And for Loan Officers it is important to know how your compensation is derived as your manager may not give you a straight answer for one of 2 reasons; one he or she doesn’t understand how it works or; two they don’t want you to know how it works.  This little blog may cause ripples in the industry but personally I have learned to educate people in the industry as well as consumers and not to hide anything is always the best practice.   I write this with 34 years experience in the mortgage industry and have seen the good the bad and the ugly in this industry and we are going through another change and consumers should be aware of all of their options when it comes to financing and the right questions to ask.  I think all would agree with the statement that consumers are best served with the lowest interest rates and fees as possible. 

How does Loan Officer Compensation effect my monthly payment and why should I care?  Great question, and the answer is a bit complicated, but it will be helpful to a consumer to know how to get the best deal possible when shopping for a loan.  Loan Officers should know as they will be directly affected when clients go the lending source with the lowest interest rates.  We need to start at looking at the current laws surrounding Loan Officer compensation and those laws have now been around since the Mortgage crisis of 8 years ago in 2010.  These laws targeted Loan Officers but the laws were not equal in the way they were prescribed.  For example, a Commercial Bank Loan Officer may or may not have an NMLS license and may be paid a salary and the Bank Loan Officer may also be in charge of several other types of loans other than home loans such as Auto Loans and credit cards.  A Loan Officer that works for a Mortgage Banker or a Direct Lender, depending on the terminology, can can be compensated up to 3% of the Loan Amount by law.  A Mortgage Broker can only charge 3% total to their company and the Loan Officer is paid from that.  The difference is how much the respective companies can charge the consumer then how much the loan officer can add to the company profit margin for their compensation.  The Commercial Bank Loan Officer has no control over how interest rates his or her Bank presents them to the consumer, however, it is safe to say that Banks having to maintain a nice consumer Branch and personnel have a high cost of doing business and generally have higher interest rates.   The Mortgage Banker or Direct Lender has the same high branch operations that need to be covered in the profit margin before the Loan Officer adds his or her percentage to the interest rate and they can add up to 3% for themselves.  The Mortgage Brokerage company has to be lean to stay in the game as the Mortgage Brokerage Company can only make 3% of the loan amount total to the company and the Loan officer has to be paid from that.   Next, we will need to look at how and where interest rates come from. 

This is where is gets complicated but if you are a consumer reading this know that you will generally always do the best if you work with a Mortgage Brokerage Company and here is why.  As I said above a Mortgage Brokerage Company can only make 3% on a Loan transaction and the Loan officer must be paid from that.  As a Loan officer you might be saying why would I ever want to work for less?  Here is where the consumer will drive the answer to that question as a Loan Officer that makes more money per transaction at the Mortgage Banker you, the consumer, are paying for it in higher interest rates.  As I stated earlier a Mortgage Banker or a Direct Lender, which ever terminology you wish to use, can make unlimited amounts of money to the company without regulation.  Here is where you may have to read this a couple of times to fully understand what is going on.  Having an understanding how interest rates are derived is important as all companies go to the same well to water their water, so to speak, to get their rates, and that is Wall Street.    The basic interest market where Commercial Banks, Mortgage Bankers and Mortgage Brokerages get their interest rates come from the trading of large security pools of mortgages called Mortgage Backed Securities or MBS’s.  These MBS’s are bought and sold every day all trading day long (from 9am est. to 4pm Est).  These pools of mortgage have interest rates associated with each pool and are averaged to the nearest 1/8^th of a percent.  This is not a math lesson so I won’t go into the deep details of pricing, but this is where it begins.  Banks and Mortgage Bankers who service mortgages (collect mortgage payments from borrowers) set the interest rates and the discounts and rebates associated with each interest rate in a 1/8^th percent interval and they add their company profit margin on to those MBS rates and that is called a Wholesale Interest Rate.  A Wholesale Interest Rate is the interest rate and fees that the company needs to make on each transaction as a minimum.  A Mortgage Brokerage Company will go to these companies to find the best rates and deliver their loans to them and offer the Wholesale Interest Rates with their fee of a maximum of 3% (MAE Capital Real Estate and Loan only adds 2.5%) added on.  A Mortgage Banker or Direct lender, on the other hand, is a company that will fund their own loans then either put them into a pool of MBS’s and sell them or keep them and service them.  With those extra Origination expenses, a Mortgage Banker has, such as the cost of a Branch Manager, the branch rent, processing expenses and support staff will have to be added to the Wholesale Interest Rate before a Loan Officer is paid.  The Loan Officer will then have to add his or her compensation costs above the branch costs this drives the costs up to the consumer thus higher end Interest Rate and fees.   The Mortgage Brokerage Company will take on all the origination costs of the loan and will be able to use the Wholesale Interest Rate and simply add their fee to be profitable thus leaving the consumer with a lower interest rate and a lower monthly payment. 

Now that you understand how Loan Officers and Companies are paid you can make a logical choice in companies you wish to get your financing through.  However, since this is an industry secret you may be confused when you talk with companies and Loan Officers when shopping for a Mortgage.  First, MAE Capital Real Estate and Loan is a Mortgage Brokerage and our regulator is the California Department of Real Estate and we do offer wholesale rate to our clients so you don't have to look farther than this article.  As a Mortgage Brokerage we are required to hold 2 licenses to be able to offer Loans to our clients and Real Estate Services, those are a Real Estate Broker license and a NMLS License (National Mortgage Licensing System).  A Direct Lender or Mortgage Banker, on the other hand, only has to hold the NMLS license.  Another advantage of using a Mortgage Brokerage Company is that we have to maintain both licenses and with the additional knowledge we can help negotiate and explain the Real Estate process to consumers and even bundle our services to save them even more money.  So, if you are reading this then you have found the key to finding the best interest rates as Mortgage Brokerage Companies in California have the ability to offer the lower interest rates.  But don’t be fooled if you are calling around and get a Direct Lender’s Loan Officer and they call himself or herself a Mortgage Broker, you will have to ask them who their Business' regulator is and if it is not the California Department of Real Estate and it is the Department of Business Oversight then you are actually talking with a Direct Lender's Loan Officer trying to get your business.   Call us today even if you are in the middle of a Loan Transaction we can analyze your transaction for free and let you know if you are not getting the best deal possible.     Again, our phone number is 916-672-6130 and our website is www.maecapital.com  we look forward to saving you money. 

2018 started off with relatively low interest rates but in the last few weeks interest rates have been on the rise.  The stock markets have hit record highs and the economy has added over 200,000 new jobs.   Although the Stock has corrected and has become volatile in the last week or so it is still trending over 24,000 points, the highest in it’s history.   So with the strong stock market and new jobs interest rates are rising to slow inflationary pressures, a kind braking system to the economy.  In order to understand this affect to the equity markets (Stock Markets) and why it signals coming inflation, we have to break it down to why it is happening.   As people make more money and buy more things that puts a pressure on the supply of goods and services and when there is a stronger demand for goods and services prices will tend to go up.  As prices go up for goods and services the Federal Reserve will raise interest rates to slow the demand down as the higher prices for credit (higher interest rates) will slow people from purchasing goods and services, in theory.   

The theory of fighting inflation by raising interest rates has been a policy of the Federal Reserve Board since the 1970s.  So, when the interest rate markets see any possibility of inflation they will tend to start the process of raising interest rates in anticipation of the Federal Reserve raising them.  This is what we have been seeing since the first of the year. Several events have happened to signal possible inflation in the future and as they unfold we see the markets adjusting to stay in front of what the Federal Reserve will do with interest rates when they meet at their monthly meetings.  One of the major events that is signaling inflation is the lowering of the corporate tax rate to 20%.  It seems people in the media and some closed-minded folks think that by lowering corporate taxes helps the rich some how when, in fact, it helps the American middle class people far more.  This is simple economics that is not taught in our public schools.  

To fully understand this, you must first look at corporations as tax pass through entities.  When a corporation pays higher taxes they just pass that cost through to the consumer in the form of higher prices for their goods and services.  Higher taxes also mean a big corporation will limit how much money they keep as profit in the U. S. as opposed to taking that profit in a country with lower taxation rates.  The money saved by the lower tax rates will tend to keep the money in the US and will be re invested to hire more American workers and keep dollars in the US.  Thus; more money in our economy for the American people to spend and eventually driving up prices causing inflation and forcing the Federal Reserve to raise interest rates to slow the economy down.  You see, if the economy grows too fast then there will be a higher demand for goods and service than they can be provided and that will cause prices to go up.  The theory has been to raise interest rates so the flow of money slows down with the higher cost of money.  This is a confusing topic for most people that don’t have a degree in economics like your author, but if you understand these basic principles you can not only save yourself money, but you can make money by knowing what is coming.       

So how does this relate to Real Estate you ask?  Knowing the economics behind the economy you can make better decisions as to when to buy home for investment or when to lock in your interest rate on your home or when to refinance and save on your monthly payment.  What this tells me about this year in Real Estate is that it should be a hot year for Real Estate Investment on both the Residential side as well as the commercial side of Real Estate.  A smart investor will note the economy is starting to improve and more people will have more disposable income to invest thus driving up Real Estate prices.  We have seen this happening in the residential sector for a few years now but it did not have to do with a strong economy as so much as the lack of supply of homes.    We have seen builders come back into the markets where they can build, and the supply of homes has increased to offset demand.  In the markets where builders can not build, due to lack of land, we have seen prices increase to astronomical levels.  IN some markets the Government has kicked around rent-control which would limit the amount of rent a landlord could collect in a certain area.  The result of rent control would be more run-down real estate, lack of new investment and corruption.  The Government should let the free markets figure out where rental prices should be as well as values.  As you can tell I am a firm believer in free markets and less government involvement as history has shown that when governments intervene in economics it causes markets to tighten as people and companies have to spend more for compliance of the government regulation that enviably hurts the very consumer they are trying to help.  I know the what the argument is from the other side is but it makes no economic sense as every result of more government is higher prices to people, bar none.  

In conclusion my advice to potential new home buyers is to lock in their interest rate as soon as they can when they are buying a home in this market.  If you have been contemplating refinancing your home my advice would be to do it sooner than later as you will be facing higher interest rates.  If you are looking to invest in Real Estate, again do it sooner than later as you will not only get a lower interest rate today than you will tomorrow, but the prices of the Real Estate Investment will be lower today than tomorrow.  Interest rates will be common place to be in the 5%-6% range for residential homes in the next 30-60 days from February 7, 2018.  For more questions on buying Real Estate or Refinancing or even commercial Real Estate give us a call and we will help you with all your Real Estate investment needs.  Again, MAE Capital Real Estate and Loan 916-672-6130.  

Update to this article 2/22/18- Rates continue to rise due to all the factors listed above and now the Federal Reserve has also said they need to counter inflation by raising rates.  I will  predict that interest rates will be consistently in the 5's by mid summer.  So if you are looking to refinance to take cash out to consolidate bills, pay for college, or home improvement I would suggest that you push up your time frames and get it done now so you can lock in a lower interest rate.  It is simple, call one of our qualified Loan Officers and lock you interest rate in today.  

Update: March 5 2018,  Interest Rates still are trending upward although not as fast as we have seen.  Again the stance we are taking is to lock our clients in as soon as we can to get the lowest rate possible.  As a Broker we are trending about 1-2 points lower in fees or about .125%-.25% better in interest rates than our Mortgage Banking friends.  

The Federal Reserve has raised the Federal Funds rate by 50 basis points or .5% last year 2016, so what does this mean?  Although the Federal Reserve does not control interest rates on homes, it does control interest rates that banks lend to each other called the Fed Funds Rate.  During the same period interest rates on home loans rose by 50 basis points as well.    The policy of the Federal Reserve Bank has been to use interest rates to quell inflation.  This policy started back in the mid 1980’s with Paul Volker as Fed Chairman.  The concept or policy is that if the Central Bank (the Federal Reserve Bank) senses that inflation is threatening the economy interest rates are raised to slow the flow of money thus keeping inflation at bay.  This has been the Fed’s policy and it has been working, for the most part for the last 30+ years.   The question should be asked if this should be continued or modified as our economy has gone more global than ever before and coupled with a National debt over 20 trillion dollars, does this policy still work for the American economy?

Let’s first look at what the effects of higher interest rates are in the American economy and then what it presents to a worldwide economy.  In America in a higher interest rate environment it becomes less desirable for large projects to start as the higher cost of the money will have impacted the profitability of the project.  For example; if a large development project is evaluating the costs to build and what the profit margin is going to be at the end of the project the cost of the money to complete the project will directly effect profitability.  I addition, if they are going to borrow money at say 6% and the interest rates rise to 6.5% on a $100 million financed the difference in annual payments would be $500,000 a year.  As you can see this dramatically impacts the profitability of the project.    So, in theory, less projects will start in a higher interest rate environment thus less employment and less money flowing into the economy to push prices on goods and services higher.  So, what you get is a general slowing of the economy under this theory that has been used by the Fed for the last 30+ years.  What higher interest rates do to potential home buyers is cut the buying power for potential home buyers.  With a .5% rise in interest rates the buying power of a home buyer will decrease by $30,000 on the average.  So, with the new interest rate being .5% higher a potential home buyer will qualify for $30,000 less of a home.   This combined with slower job growth from large projects not starting will slow the economy thus inflation. 

Now what happens worldwide when America raises interest rates?  This is the part of the equation that I believe has not been fully evaluated by the Federal Reserve system.  It used to be if America raised rates other countries would follow thus keeping the dollar on par with other currencies around the world.  Also, our debt was believed to be under control back then so other countries would just follow America’s lead.   What has happened, and has not really been taken into consideration from our central banking system, is that more outside countries hold our debt and more outside countries have joined the European Economic Union, that did not exist in the 1980’s and some important countries have now left that as well.  China has become a superpower as well.   All the while, in America, our basic concepts of raising and lowering interest rates to the effects of our economic numbers has remained the same.  My question to the Federal Reserve would be why have you not changed with the times? 

With my degree in economics I have used these concepts to anticipate interest rate movements for the last 30+ years and I have been pretty accurate over the last 30+ years in doing so just from knowing these basic economic policies of the FED.    I have also observed over the years that the numbers that the Fed uses to predict inflation have become more abstract than ever before.  The Federal Unemployment number has been the bench mark for the Fed's analysis of interest rates and when to raise them.    The unemployment rates, traditionally, show the percentage of people that are collecting Federal unemployment.  The theory has been that if unemployment is low, under 6%, then America has been deemed to be in a healthy economy with a higher probability of inflation.  Remembering that the concept of inflation is that if people are making more money they are spending more money thus putting upward pressure on prices of goods and services or inflation.  The Fed has consistently used the unemployment number as a barometer of future inflation.   Problem is that since our recession of 2008-2011 these numbers have not been accurate and the actual term or length of unemployment benefits that an out of work worker can get has gone up to 99 weeks from 26 weeks.  What we have seen that, since the recession is people have gone back to work but at a far less wage then they had prior to the recession.  This lowers the unemployment number but is not an accurate depiction of how that same worker may spend the wages they are now receiving.  We have also seen a shift in family dynamics with one spouse staying home with children to combat the high costs of day care, thus taking that person out of the unemployment number entirely.  So, although we have seen a significant decrease in the unemployment number we have not seen family incomes rise to the pre-recession levels and we have not seen the kind of inflation that should happen under a full employment economy. 

With a rise in interest rates over the last few months we have seen the refinance market slow to levels that were pre-recession.  It appears that most people have been able to refinance to the lower interest over the last 6 or seven years so the demand to continue to refinance has diminished.    With higher interest rates it has become less attractive to refinance.  One of the consequences of the higher interest rates is that the flow of income slows to the lending industry and will eventually lead to layoffs in the mortgage industry as it has been a strong market for so long that lenders have staffed to fill the old refinance volume needs and now with less volume they don’t need the staff.  These folks will increase the unemployment number by May or June of this year as there is always a time lag when there are changes in the economy, hopefully the Fed does not do another increase in the meantime as that will lead to more layoffs.   Although rates have risen interest rates on home loans are still in the 4’s which is still great, so if you have not refinanced and your current rate is in the high 4’s or fives, or if you need to take cash out of your house to pay for bills or college there is still time to lock into a good interest rate. 

I am just scratching the surface with regards to the factors effecting interest rates and inflation in this article.  I am a believer that in a global economy and the changes that have taken place over the last 30+ years we should be looking at interest rates from a different set of rules.  Our Government has traditionally been reactive to changes in the economy as opposed to being proactive operating on a policy of ”it works until it doesn’t”.  The result is government intervention to fix it, which has never worked and just has put America further into debt and burdened with a larger government with more and more government agencies than ever before.  I don’t want to get political here but what has made America an economic superpower in the past was that people were free from government intervention to create new ideas and new products and services.  With this freedom came the knowledge that if you fail, big or small, no one including the government would bail you out.  This has changed radically with people looking to the government for solutions where they should be looking to themselves and realize that win or lose it is up to the individual to make things right, not government.  We need to become more self-reliant than a dependent society.   These factors also need to be factored into the Fed’s analysis of inflation and how to combat it.  

So if the current Federal Reserve policy is to use the unemployment number as the main factor in determining whether or not they should raise interest rates we will be heading into an economy where we will see higher volatility with interest rates and the economy as a whole.  With the Fed and Janet Yellen (Current Fed Chairperson) looking to raise interest rates again this year we will be looking to an economy that might be cooled off too much.  Some inflation in a healthy economy is not a bad thing so long as wages can keep up with it.  We can look too see home refinancing slowing down this year with the higher interest rates and hopefully home purchases don’t slow too much as that could put America right back into a recession.  It is a balancing act for the Fed to change rates as they really don’t know what  the end effects will be and if they have gone too far.   As always this is just an opinion of a guy who has been in the mortgage industry for 32+ years and if you wish to comment feel free and if you have not refinanced we would love to assist you with that at MAE Capital Real Estate and Loan.  You can call our offices directly at 916-672-6130 or email us at info@maecapital.com.  

Post Script 3/20/2017  The Federal Reserve (The Fed) raised the federal funds rate by .25% which was anticipated by the markets.  Since the Markets liked the only .25% increase the DOW Jones rose to new highs.   The important part of the announcement was that they would be monitoring the unemployment rate and inflation throughout the the year and if they see any increases in inflation and significant decreases in the unemployment number they would then raise rates again.  We can only hope the Fed doesn't raise rates anymore or it could significantly reduce the availability of housing and affordability.  Key indexes that you need to watch to see if there is any inflation; one the stock markets, as this will increase wealth of individuals and they may pull it out and use the funds to purchase other items that could cause inflation.  Watch the unemployment numbers and watch them per the season, as spring and summer should have seasonally lower unemployment but not too low where there is a higher demand for workers than there are workers to fill the demand,  I don't see that happening but that will cause inflation.  I see a steady healthy growth during the year if rates are not increased anymore.