I. Radiologists: The Best AI & Economic Lesson Ever?
In 2016, Geoffrey Hinton (The “Godfather of AI”) predicted that radiologists would be obsolete in five years. BUT – now there’s a shortage of them, and salaries are surging higher.
AI made imaging so much cheaper that medical practices are ordering far more images – creating a totally unexpected and much greater need for radiologists.
This is a huge reminder of two things:
- There will not only not be a “jobs apocalypse” because of AI, but there will be an increase in jobs because of AI.
- Technology often ends up making things so much cheaper that demand ends up increasing for tech-enabled products and services – ultimately creating more jobs.
Note that this also doesn’t account for all the new jobs AI will create that nobody can envision right now, much like how nobody envisioned Social Media Managers, Content Creators, and SEO Specialists 20 years ago.
II. Woohoo! “Hiking Rates Into An Energy Price Shock Causes Recessions”
Renowned analyst David Rosenberg tweeted this yesterday:
“Not once in the post-WWII era, outside of 2022 when the American consumer was swimming in a $2 trillion pool of fiscal stimulus checks, has the Fed managed to avert a recession when they tightened policy into an energy price shock… Nobody, including the Warsh-led Fed, believes a recession is even a remote possibility. A big surprise is coming… As we saw with the Internet boom in the early 2000s, AI is not bigger than the business cycle.”
Mr. Rosenberg makes a strong case, and that may be our best hope for lower rates, as both Treasury Secretary Bessent and the Fed have proven once again that they are mostly powerless against the almighty bond market.
It’s a reminder of something I repeat often: what is bad for America (weak economic data) is good for the mortgage industry (because the data pushes rates lower).
III. Conforming Loan Limits Are Up For 2027 (4 Big Takeaways)
We can already fund conforming (Fannie and Freddie) loans based on the expected increase in the 2027 loan limit, or maximum loan amount allowed by Fannie and Freddie.
The current low-balance (low-cost area) limit for a single-family home is $832,750. We can now lend up to $850,000.
High-balance (high-cost area) loan limits will increase from $1,249,125 to $1,270,000.
The high-balance (high-cost area) loan limit for a fourplex will approach a whopping $2.5 million.
- Subsidizing Millionaires: When Fannie Mae was established, I am certain nobody in their wildest dreams thought they’d end up subsidizing $1.5 to $3 million (fourplex) home purchases.
- Just Makes Homes More Expensive: Yes, Fannie and Freddie provide financing for borrowers who otherwise could not obtain financing, e.g., borrowers with 5% down. But – that just drives up housing costs for the next crop of buyers. Every government subsidy to make things more “affordable” just makes things more expensive, e.g., student loans and college tuition.
- Who Benefits from Higher Loan Limits? Buyers with lower down payments who could not obtain financing without Fannie and Freddie’s effective subsidies (underwriting loans no private lender would).
- MOST INTERESTING TAKEAWAY: Alternative loan products for strong borrowers are now often better than what Fannie and Freddie can offer. Non-QM and other options sometimes offer strong borrowers lower rates than Fannie and Freddie options. This is what happened in the early 2000s, and we ended up funding very few Fannie and Freddie loans.
