Real Estate Consultant · Indianapolis, IN · Member since 2021 · 440 posts · 292 votes
Recently, I ran into this infographic. Very interesting predictions from Fannie, Wells and the MBA. If the forecasts are accurate, we are around the corner from another hot market with rates set to drop almost two percent!
My question is, where do you see interest rates going & why? What do you see happening in the real estate market over this winter?
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
I follow these forecasts monthly (and talk about them on my YouTube channel) and in hindsight when you look into the details the rational they were based on is probably still correct, but the timeline was too optimistic. Now they all follow the "higher for longer" lead from the FED. The MBA has always been and still is the most optimistic, but even they push sub 6% rates out to the end of 2024. I think there is a possibility that we all get suprised and this happens faster than we think, especially with the news we have seen in the last few days from the labor market and the manufacturing index. Forecasting interest rates has always been next to impossible, but I think there is a chance that the 8% range is behind us for good. Noteworthy that ven with 7-8% rates our market in Milwaukee has sustained over 100% sales to list price ratios all the way through November, which is remarable and underlines buyer motivation. We probably will not see sub 4% come back ever again. But even with rates around 5% we will see a run on the market and buyers will push up prices significantly, especially if it happens during the spring market. Just hard to say if this could be in 2024 or in 2025.
Recently, I ran into this infographic. Very interesting predictions from Fannie, Wells and the MBA. If the forecasts are accurate, we are around the corner from another hot market with rates set to drop almost two percent!
My question is, where do you see interest rates going & why? What do you see happening in the real estate market over this winter?
Hey Tyler,
Interesting infographic, thanks for sharing!
Prior to seeing this, some of what I've read over the summer (including on MBA's site) hinted at NO rate decreases until Q3 '24. This suggests decreases even sooner which could be refreshing to both buyers and sellers.
If rates do come down, I'd anticipate a small time window where inventory increases a bit. Sellers will see buying another property more feasible with rates closer to 6% and hit the market but it wont take much time before the high buyer demand picks up most/all of that inventory.
IMO - I don't think this slight inventory spike will drop prices unless we see a surge in jobless claims.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
I follow these forecasts monthly (and talk about them on my YouTube channel) and in hindsight when you look into the details the rational they were based on is probably still correct, but the timeline was too optimistic. Now they all follow the "higher for longer" lead from the FED. The MBA has always been and still is the most optimistic, but even they push sub 6% rates out to the end of 2024. I think there is a possibility that we all get suprised and this happens faster than we think, especially with the news we have seen in the last few days from the labor market and the manufacturing index. Forecasting interest rates has always been next to impossible, but I think there is a chance that the 8% range is behind us for good. Noteworthy that ven with 7-8% rates our market in Milwaukee has sustained over 100% sales to list price ratios all the way through November, which is remarable and underlines buyer motivation. We probably will not see sub 4% come back ever again. But even with rates around 5% we will see a run on the market and buyers will push up prices significantly, especially if it happens during the spring market. Just hard to say if this could be in 2024 or in 2025.
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
2y
@Abel Curiel prices are "downward sticky": there is a close to zero chance we see prices drop (outside the the normal seasonality). Before there is downward pressure the market needs to meet the following conditions: more than 5 months of inventory and more than 60 days on market (median). This would create the circumstances where some sellers might be sitting long enough to get motivated. But only the ones who "have" to sell. Everyone else will just postpone their plans until the economy improves. Almost every home has a large chunk of equity, we don't have sub-prime loanss that come due and there is not a year long over- production of new homes- just the opposite.
I think buyers will actually respond faster to rate drops than sellers. The reason would be that it takes more time to get a home ready to list compared to getting a pre-approval. So I don't think lower rates will mean more inventroy, but it will mean more transaction volume, because we have pent up demand of people who want to move and had put their plans on ice because of rates.
Investor · Charleston, SC · Member since 2011 · 606 posts · 413 votes
2y
I don't think the Feds will not cut probably for another six months. Even if they do you cut it's not going affect along rate that much and we will stay between 6% and 8% for the foreseaable future. Small changes in interest rates get people excited but overall it's more difficult getting people qualified to buy a house at higher rates and higher home prices.
Recently, I ran into this infographic. Very interesting predictions from Fannie, Wells and the MBA. If the forecasts are accurate, we are around the corner from another hot market with rates set to drop almost two percent!
My question is, where do you see interest rates going & why? What do you see happening in the real estate market over this winter?
The rate would go down in 2024 or 2025 because there's strong indication the banking industry can no n to sustain this high rates anymore. The Fed doesn't want to repeat their mistake with Bear Stearns like in 2008
This info graphic shows exactly what I've been predicting. I think we will see rates drop (6.5-7%) next year. It's an election year and the economy is one (if not THE biggest) topic. Also, 8% rates are keeping many young, first time buyers out of the market. This isn't sustainable. But I agree with Marcus, I don't think we will ever see sub 4% again in our lifetime. I also don't think we are going to see average home prices dip.
I also think there are a lot of buyers (AND sellers!!) waiting in the wings for rates to drop! I believe when they do we are going to have a big market push!
There are two trends basically right 1. The rate itself 2. The spread to mortgage rate
Origially, we have 3% FFR rate with 150-200 bps spread.
Currently with 4.75/5% FFR with 280-350bps spread.
It's actually more important to have this spread being normalized, so market has two jobs : 1. reducing FFR 2. reducing the spread
If CPI is 3.5%, FFR is 4% and spread of 200 bps, we could have 30YFRM at 6% and 5/10YARM arond 5-ish, which is already pretty good.
Now if we look at bond market, the yield in short term is higher than the longer date term. The Treasury latest decision to add more offering in short term than the later is also giving some hope that the spread can be normalized.
That would be great if those predictions came true. I think this winter we will see some of the best deals we've seen because rates will likely still be high, many people are sitting on the sidelines, it's difficult to go and see properties, etc.
If rates did start with a 5 again, it would bring a lot of buyers AND sellers back to the market IMO.
But, I believe the demand would still outweigh the supply (especially here in Reno).
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
So forget the people behind the chart.
1. What causes interest rates to go up or down? Demand for cash or credit.
Just myself. We have 3 projects on hold till interest or costs go down. I don’t expect costs to go down until the economy tanks. If interest goes down then demand will drive it right back up.
All three of our bankers have said the Covid funds have finally worked their way thru the system. This extra cash in the system has prolonged the potential impact or occurrence of a recession. All three banks have tightened their credit. Although tightened credit means less demand for credit, it actually causes pent up demand. Thus the Fed will need to deal with pent up credit. Which means higher interest rates in the future.
Demand for Cash. Federal debt interest payments going up. Wars. Baby boomers retiring. Federal debt is $33T. But unfunded debt of $130T for baby boomer benefits coming due. Will there be more or less demand for cash? Will interest rates rise?
2. Labor- baby boomers are leaving the workforce. Work population is going down. Wages will go up. Inflation. Undocumented workforce will keep lower wage positions down but qualified positions will demand higher pay.
3. China- is going bankrupt. There wages have tripled in the last 4 decades. They are no longer a low cost producer. Just the concrete plants are keeping production there. Their farm population has moved to the city their workforce won’t come from there. The 1 baby policy has set them to an irreversible population reduction. Their workforce is aged out. Their wages will go higher. Only Malaysia and India have both the population size and low wages to take over as the next low cost producer. India does not care about western economics. Malaysia is a Muslim territory. It will take decades for this to transition to them. Costs will go up. What happens to interest? . 4. Federal debt average life is 8 years. As this debt gets refinanced. The debt interest payments will balloon out of control. The feds only salvation will actually be inflation. Paying debt with cheaper dollars. Or they will have to print money which they have reached the point where they can’t. Our federal debt back in the 80’s when rates went up to 20% was only about 5% of National gdp. Now our federal debt is a multiple of our gdp.
They have no way out. Personally I’m not worried about interest rates. I would worry about wealth preservation.
they have to reduce rate just because of this news:
BREAKING NEWS
MOODY'S HAS ESTIMATED THAT BIG BANKS ARE SITTING ON $650 BILLION OF UNREALIZED LOSSES
$650 billion. You are reading this right.
This QE->QT->QE is doom loop cycle.
If they continue QT the whole financial industry gonna collapse and they have to rescue the bank, when they have to rescue the bank they have to restart QE.
The ONLY way a country can do QT is only when real economic growth is in huge expanding, if their ISM is going for growth then yes do QT, but a country that's on deficit budget they can't do tight QT.
Today, the 10 year yield of Vietnam is lower than US , I still don't understand the level of idi**tic policy that this country had. I suspect this policy is created for something else lol maybe to punish China.
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
2y
Over the winter: I see nothing happening at all. The RE market has just about frozen up completely at this point. High rates + high prices + several years of immediate low rates = demand destruction & inventory destruction.
Beyond that, I see rates coming back down simply because the national debt is so atrocious at this point that the federal government will need low rates to maintain its ability to issue debt, pay on current debt and continue deficit spending. Inflating your way out of debt as an issuer of currency and a net debtor nation only works in the third world, not in the cases of reserve currencies. If other nations even got a whiff that there was some conspiratorial idea between the fed reserve & the federal government borrowing costs would explode and the value of current debt would implode.
How much rates come down and when is really impossible to say. I don't think the fed cares about the destruction of the housing market as a significant portion of the national GDP, because they've been contributing to the problem in a huge way ever since they panicked and dropped rates to zero at the beginning of COVID. That supercharged the RE market, raising prices exponentially and encouraging everyone to refinance. Now you have a lot of people locked into having purchased at a high price, and a lot of people that have locked into a bargain-basement rate. None of that inventory is going anywhere, which reduces inventory enough that prices are locked at current levels and buyers are shut out with the combination of high prices and high interest rates.
So in the moment. What are your lending institutions telling you? What type of deals do you see movement on? Although prices are expected to move upward if there is a downward move in rates, have you or your clients started to sell propertie outside your Cashflow or appreciation windows for wealth preservation?
In this post, I will provide what I hear from my clients and the cost of waiting.
We have 180+ clients, and when I talk to them, I always ask their opinion concerning the interest rate situation. Below are the most common opinions I’ve received:
Interest rates will fall before the 2024 elections. The logic is that politicians always operate in their own best interest. Falling interest rates are their only ability to get elected or reelected.
There will be a token decrease by the 2024 elections, but it will be 3+ years before interest rates decrease significantly.
Interest rates will decrease when the Federal Reserve no longer pursues a restrictive policy. This typically occurs during a recession, periods of low inflation or deflation, or when the unemployment rate increases. However, none of these indicators are currently evident.
In high-demand markets like Las Vegas, as soon as interest rates start to fall, people who have waited for 2+ years to buy a home will enter the market. Increased demand will result in rapidly increasing property prices and rents.
Buy Now or Wait
A question I frequently receive is whether it makes more sense to buy now or wait.
Waiting only makes sense if either:
Interest rates significantly decrease
Prices significantly decrease
No one can predict when interest rates will decrease significantly, but it could be in 3 or 4 years. Thus, it doesn’t make sense to wait.
What about prices? Whether prices increase, decrease, or stay the same depends on the city where you invest. For example, since the beginning of this year, the prices of Las Vegas properties in our target segment increased by >9%.
What Is the Cost of Waiting?
An example will hopefully help.
Suppose property prices increase by 5 %/Yr, and it takes five years before rates fall to 5%. What is the cost of waiting?
I will assume a $400,000 property to have numbers to work with. The table below displays the increasing market value from appreciation and accumulated equity. By waiting, you lose over $110,000 in equity growth.
There is another problem with waiting. In five years, prices will be higher due to the 5% appreciation rate, so buying the same property will cost more. See the table below.
Waiting five years costs you:
Lost equity: $110,513
Increased down payment due to appreciation: $33,154
Debt service savings due to lower interest rate: -$39/Mo
What if you purchased today and refinanced in 5 years?
As an investor, it makes the most sense to me to buy now and refinance when rates decrease.
Many hesitate due to the fear of negative cash flow. However, we are still identifying properties with a first-year ROI between 0% and 1%. For cash purchases, ROI ranges from 4.5% to 5.5%.
So in the moment. What are your lending institutions telling you? What type of deals do you see movement on? Although prices are expected to move upward if there is a downward move in rates, have you or your clients started to sell propertie outside your Cashflow or appreciation windows for wealth preservation?
People who are selling now are doing it because they have to usually. Hence there's some motivation I'm noticing on investment properties for sale, and deals to be scored. On the buy side we are seeing people who are in it for the long-haul still buying when they see a good deal...Rates are temporary, good deals are not.
Recently, I ran into this infographic. Very interesting predictions from Fannie, Wells and the MBA. If the forecasts are accurate, we are around the corner from another hot market with rates set to drop almost two percent!
My question is, where do you see interest rates going & why? What do you see happening in the real estate market over this winter?
What is already happened is Reverse Repo already declined so much that RRP would be zero around Q2 2024, when RRP is zero it's practically the end of QT.
Recent bond issuance is also signaling end of Fed rate hikes. I think the question is more to : how much reduction it would be ?
I agree with @Carlos Ptriawan. The end of rate hikes is here or fast approaching. We'll see a lot more inventory in the market next year but lockstepped with significantly increased demand. Over the last 6 months we've seen an increase in home affordability with significantly more potential upside on flipping deals.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
2y
Where is it going, not much is going to change over the next few months. I just keep my head down and keep buying /flipping props with 15- 20% net caps
