“Don’t worry, rates will plummet in May of 2023!”
That’s me making fun of me, as I was parroting Barry Habib and others in late 2022 and early 2023. We all thought rates would start to fall sharply then in response to cooling inflation and economic weakness.
Not so much…
“Not so much” is particularly true today, as rates shot through the roof again this morning in response to a very strong jobs report.
Stocks are tanking too, as “low-rate-addicted” investors fear that inflation is on the rise and the Fed will not cut next year, as this excellent Kobeissi Letter post explains.
Which Analysts Were the Most Accurate in 2022 and 2023?
It’s very interesting to look at which analysts were correct over the last few years about the economy holding up and rates remaining high.
These analysts include Jim Bianco, Lyn Alden, Luke Gromen, Brent Johnson (Santiago Capital), Raoul Pal, and Michael Howell (CrossBorder Capital).
They all focused heavily on “fiscal dominance” (deficit spending) and the resulting liquidity infusions. I highly recommend following ALL of those analysts closely on X (they’re educational and fascinating).
Whether it will last remains to be seen, as our industrial economy remains weak, overseas economies are struggling mightily, and no economy can survive on deficit spending forever (see China and Japan).
George Gammon also reminds us over and over that we saw similar surges in rates, employment, and/or inflation in 2007 and 2008 before everything crashed.
Moving Listings by Offering 4.5% Rates
A friend of ours works with a builder who moves houses very quickly because he offers 4.99% rates with those houses.
This is in spite of the fact that the homes are not particularly well priced – making this a stark reminder that low-rate-offers move homes.
The builder loves it because it costs him less to buy down interest rates than it does to discount his homes.
This week our marketing department had an all-time record number of requests for marketing materials (flyers, homebuyers’ booklets, etc.) – indicating that a large number of listings will soon be hitting the market.
This is a reminder that we love to help agents market temporary buydowns – if they think their listings might not move quickly in a high-rate environment.
For a $1MM home with 20% down, a 3-2-1 buydown (lowering the rate by 3% in the first year) will cost about $37,000 – which is $13,000 less than a $50,000 price cut (for a $500,000 home, you can just cut those numbers in half of course).
Our Magic “Cost of Buydown” Spreadsheet for Agents
We have a spreadsheet that agents can use to easily compare the cost of temporary and permanent rate buydowns to the cost of cutting home prices.
Please let me know if you’d like me to send you a copy of the spreadsheet.
