On Thursday, CPI (inflation data) came in lower than expected – and we saw one of the largest one-day rate drops ever.
I of course blogged about it here: THIS IS HUGE! Inflation & Rates PLUMMET.
My biggest takeaway though wasn’t just that inflation and rates dropped; it was to point out how correct the likes of some of the macro-observers I follow were with their predictions.
In light of their accuracy, I want to again point out what they are predicting for EARLY NEXT YEAR – and it is why I am so convinced we will see much lower rates by March!
I am bringing this up again because I spoke on a panel in front of a large group of agents a few weeks ago, and one of the other panelists insisted that we would see rates in the 8.5% range by early next year – with little evidence to back up his prediction. What alarmed me more, however, was the surprisingly large number of people in the audience who heartily agreed with him.
Hence, I decided then and there to blog about this again (despite hitting it a few times already) because a large potential rate drop is so important when it comes to the real estate market.
If Rates Are Going to Drop Significantly:
- Buyers will likely be able to refinance into a much lower rate.
- Buyers should not pay points to “permanently” buy down their rates because those points will be wasted if they refinance soon.
- Buyers concerned about high rates and payments now should take comfort in the likelihood of refinancing into a much lower rate and payment.
- Buyers who are convinced interest rates impact home values should expect values to increase when rates drop.
The reason I am so convinced rates will plummet early next year is because the macro guys who were so correct last week are predicting a major recession, a fall-off in demand, and even deflation by Q2 of next year – and all of that translates into much lower rates.
Barry Habib: You Ain’t Seen Nothing Yet! Barry Habib of MBS Highway fame, who was the most accurate last week, frequently reminds us that job losses lag economic data and we won’t see the bulk of job losses until after we are in a recession.
Jeff Snider: It looks like 2007; economic data is stunningly weak; and China is going to drag down the world. Jeff Snider of Eurodollar University fame is an extreme data wonk who constantly illuminates all of the recession signals the Fed is not seeing.
In this podcast, Snider points out the frighteningly large number of parallels today’s economy has relative to 2007’s economy – right before the financial crisis – when the Fed got everything ridiculously wrong.
In this podcast, Snider points out just how weak the Chinese economy is right now with housing crashing, consumers withdrawing, and exports dropping like a rock. He further points out how a weak economic outlook for an economy the size of China’s will be a drag on the entire world.
In this podcast, Snider points out how weak the job data actually is and how the reports we are getting and that the Fed relies on are very misleading.
Jim Rickards is another macro-observer whose accuracy I very much appreciate. In this podcast/video, he too says that a bad recession and even deflation is likely.
Joe Brown is another macro-observer I really like. In this video, Joe makes another case for the Fed over-tightening and the likelihood of a recession and Fed pivot.
And finally, Stephanie Pomboy has been on the Wealthion podcast a few times in recent months, warning about “deflation.” Here is her latest video.
I could of course go on and on and provide numerous other podcasts and videos that support the lower rates narrative (Wealthion alone has dozens more), but I will stop here.
I should add that there are numerous cases for higher inflation and rates too. Joseph Wang (a former Fed insider) makes a strong case for wage and labor inflation due to baby boomers retiring and the workforce thinning (creating permanent labor shortages), and Erik Townsend loves to remind us about the likelihood of major energy shortages and much higher energy prices (which drive inflation).
But, I think the deflation crowd makes a much stronger case, as a major recession will decrease energy demand and create enough unemployment to offset Wang’s and Townsend’s concerns – in the near term at least.
This is not to say that rates will fall steadily downward in a straight line. They will bounce up and down over the next few months. But, I remain convinced that they will be as much as 2% (or more) lower by Q2 of next year.
Will rates stay low?
No, I don’t think so, as I think we will see inflation rear its head again for a variety of reasons – and that will push rates up again (which is why I still LOVE real estate as an inflation hedge). As for timing though, I have no clue.
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