The Fed meets Tuesday and my exit buyer just lost $12,000 of budget in eight days

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The Fed meets Tuesday and my exit buyer just lost $12,000 of budget in eight days

Steve Waller
Lender · Houston, TX · Member since 2026 · 72 posts · 11 votes

Rates moved hard last week and I think a lot of us are still underwriting against the old number.

The weekly survey says 6.76%, up from 6.71%. That understates it. The daily average ran 6.89 to 6.97 to 7.07 across three sessions, the highest since May 2025. The ten-year went from 4.78% on the 4th to 4.95% on the 10th before easing back Friday.

Two prints did it. Producer prices Thursday, +0.4% in the month and +5.4% on the year. CPI Friday, +0.4% and +3.4%, core +0.3%. Gasoline is up 27.4% over twelve months and accounted for more than a third of the monthly all-items increase. That is a supply shock, not a wage story, which is the kind a central bank has a harder time looking through.

The FOMC meets Tuesday and Wednesday with a dot plot attached. The range has been 3.50-3.75% since the hold in July, which went 9-3 with three members already wanting a quarter point more. Futures went from 44% odds of a September hike in early August to roughly 80% after Friday.

Here is why I care, and I suspect why you should.

My exit buyer is financed. Houston median is $330,000. Twenty percent down is a $264,000 loan. At 6.71% that is $1,705 a month. At 7.07% it is $1,769.

Sixty-four dollars does not sound like much until you invert it. Hold the payment at $1,705 and that buyer now qualifies for about $254,500, which is roughly $318,000 of house. His budget fell $12,000 in eight days, and nothing about the house changed.

So the assumption I keep finding in files, my own included, is a spring exit priced off a rate that is supposed to be lower by then. That is not a forecast anymore, it is an unpriced risk. And the rental exit tightens before the flip does, because coverage gets decided in the last sixty dollars of payment.

What I am changing: rerunning the purchase test at today's exit rate instead of the one in the file, and treating rehab schedule slip as a pricing risk rather than just a carry cost.

What I am not sure about is the dot plot. A quarter point is already in the ten-year. The 2027 path is not. For those of you who hold rather than flip, do you actually adjust your buy box off the projections, or do you ignore them and wait for realized rates? I have never found a good answer to that one.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4w

    We attempt to forecast if they go up or we think they're going up. If we think they might go down, we keep it at the current rate as it's always best to be lean on the side of conservatism. We also have to review every deal. Sometimes a good deal may pass along and a slight increase in rates would still be well worth it 

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  • Steve Waller
    OP
    Lender · Houston, TX · Member since 2026 · 72 posts · 11 votes
    4w

    Chris, holding the current rate when you think the next move is down is the right asymmetry, and it is worth naming why it works in your book and not in a bridge file.

    You are underwriting a rate you will collect. If you are wrong on the downside you priced a little rich and the borrower refinances out. If you are wrong on the upside your yield is short but the asset still performs.

    On a six to nine month flip the rate that decides the outcome is not the one on my note. It is the one my borrower's exit buyer gets at resale, and I never collect that one. So the conservatism cannot live in the note rate. It has to live in the resale price and the days on market.

    Here is the size of it right now. The weekly survey is 6.76 and the daily average is 7.07. That 31 basis point gap is not academic. On a $330,000 house with 20 percent down, hold the payment constant and it is roughly $12,000 of purchase power gone from the buyer who has to take my borrower out. Nobody's rehab budget moved. The exit moved.

    The rehab lender version of your rule is to underwrite the ARV against the daily average rather than the survey, then run it again at the survey plus fifty. If the file only works on Thursday's number, it is priced off the slowest input in the market.

    What do you use for the takeout assumption on notes you are buying now, the forward curve or a flat haircut to today's rate?

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  • Igor Ganapolsky
    Coral Springs, FL · Member since 2018 · 487 posts · 106 votes
    3w

    Steve, this is the exact reason I stopped worrying about rate moves when I bid at tax deed auctions in Broward County.

    My buyers are almost all cash. When rates spike from 6.71 to 7.07 like you're describing, it doesn't change their purchasing power by a single dollar. Their bid is the same whether the ten-year is at 4.50 or 5.00. What it DOES change is the competition. Every financed buyer who was bidding against me at auction suddenly can't qualify for the same price. Their budget shrinks, mine doesn't. So rate hikes are actually good for cash buyers at the acquisition stage.

    The flip side is what you're living through on the exit. When I sell to a retail buyer who needs financing, that same rate environment crushes their budget just like your $12K example. So I've started pricing my exits assuming the buyer is financed at today's rate plus 25 basis points, not the rate I underwrote when I bought it.

    The gap you're describing between the weekly survey and the daily average is something I never would have noticed if I wasn't forced to re-underwrite deals that were perfectly fine two weeks ago. The survey is basically a lagging indicator at this point.

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  • Steve Waller
    OP
    Lender · Houston, TX · Member since 2026 · 72 posts · 11 votes
    3w

    Igor, the cash-buyer point is the half I left out. A rate move doesn't shrink a cash budget, it shrinks the field bidding against it. Same move, opposite sign at the buy and at the sell.

    Your plus-25 on the exit is close to what I'd want to see. I'd add one thing: price the exit off the rate the buyer will lock at your projected list date, not today's. On a four-to-six-month rehab that's a forecast either way, so the cushion matters more than the precision.

    The survey-versus-daily gap cuts both ways too. When the daily falls faster than the weekly survey catches it, a retail buyer's pre-approval understates what they can pay for a week or two.

    At the auction, does the thinner field show up in the clearing price right away, or does it lag the rate move by a few sales?

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