In 1929, famed economist Irving Fisher proclaimed that stocks had “reached what looks like a permanently high plateau.” More interestingly, he was one of thousands who thought similarly. Not so much…
In 1979, Business Week ran a cover titled “The Death of Equities”, not long before one of the greatest stock market runs in history began.
In 1999, a best-selling book, “Dow 36,000,” argued that stocks were wildly undervalued, and much of the world seemed to agree. That “new paradigm” exploded not long after.
In 2002, USA Today asked, “Where’s the Bottom?” implying that stocks would continue to fall. Note: They didn’t.
In 2005, NAR’s economist published “Are You Missing the Real Estate Boom?” and then in 2006, “Why the Real Estate Boom Will Not Bust.” Not to be outdone, Fed Chair Bernanke said in 2005, “We’ve never had a decline in house prices on a nationwide basis.” Most of America was in the same boat, buying up homes in droves.
In 2010, Time Magazine wrote: “The Case Against Homeownership,” explaining that owning a home no longer made sense. America agreed, too, as much of it avoided residential real estate like the plague for years, only to miss out on 60% appreciation from 2012–2020.
In 2008, Goldman Sachs predicted oil would soon hit $200 per barrel (when prices were $147), only 5 months before prices fell to $35 per barrel. Whoops. And again, Goldman was not alone.
In 2009, the WSJ and many other publications asked how low stocks could go, not long before we started wondering how high stocks could go (a lot higher, it turns out).
My point: These are all excellent examples of when the herd (or the general consensus) was wildly wrong. Not just a little wrong. But batshit crazy, nutso, off the rails, lunatic wrong.
Today, the consensus is that bonds will keep crashing and rates will keep rising. However, the examples above imply that when everyone is on a bandwagon, the bandwagon often crashes.
Barry Habib made this point today, and it should give us all some solace. But – I will provide more solace tomorrow.
The Best Lender For Solutions In A High-Rate Environment (The Mother Of All Solutions Too).
We’ve been cultivating this niche for about six months, thanks to our secondary markets manager. He’s a macro buff who saw these high rates coming last spring, so he started bringing on every low-rate relief valve he could find.
- Temporary Buydowns. 3-2-1, 2-1, 1-1. Yes, most lenders offer these. But we’ve become experts at the extremes, offering variants of lender-paid, seller-paid, and hybrid (seller- and lender-paid) buydowns. We also now have lower rate solutions than most.
- Interest Only. When I first blogged about these loans last summer, we had only a few investors to sell to, and the rates weren’t great. Since then, though, we have brought on new investors that now offer rates nearly as low as our fully amortized rates.
- ARMs. I have been beating up on ARMs for a long time because there was too little bang for the buck (rates not low enough to justify the risk). But that too has changed, as we now have much lower-rate ARM options.
And – as promised, here is the mother of all solutions: A 5-Year ARM Combined With a 2-1 Buydown!
5/1 ARMs come with rates (or fees) that are substantially lower than 30-year rates. A 5-Year ARM with a 2-1 buydown can easily help borrowers get a starting rate in the 4s.
