President Trump was panicking last night.
Guaranteed. Sheer panic.
This is because, in what was the most interesting weekend in finance in the last 18 years, there were two forces that brought Mr. Trump to his knees.
I will explain why below, but first, a quick reminder:
Sellers can rent back a property they just sold (and remain in the home) for up to 60 days after close of escrow.
We often tell agents and clients, however, to limit rent backs to 59 days to ensure that new buyers can move into the property by day 60. We want to avoid a potential breach of the owner-occupancy rules and a potential delay in closing time by a persnickety underwriter.
Remember too that “owner-occupied” financing requires buyers to move into the property within 60 days of closing. And, as a final reminder, some lenders and loan programs have “overlays” that require owner-occupants to move in within 30 days – so agents should still check with lenders before writing rent-back agreements.
Back to the markets and Mr. Trump’s panicking…
I have been pointing out how “oil is everything” since the Iran war started, and frankly, I was panicking too over the weekend.
The reason was Mr. Trump’s threat to escalate the bombing if Iran did not open shipping lanes.
The markets did not like this, and oil prices climbed again over the weekend, with U.S. prices shooting above $101 per barrel (from as low as $94 on Friday).
In response, interest rates were shooting higher too, as bond investors (who control rates) are terrified of the inflationary impact of higher oil prices.
The two forces that terrify Mr. Trump forced him to reverse course. Those forces are the bond market and the oil market.
Economies can’t handle oil or interest rate shocks – so presidents panic when oil or interest rates climb too much – like we saw over the weekend.
This is a very good thing, too, because it often forces presidents to reverse course on too much spending or bad policy in general. Clinton had to abandon a huge spending/stimulus bill in the early 90s, for example, because the bond market reacted so negatively. Trump had to back off on tariffs last year as well. And President Johnson was forced to raise taxes to support Vietnam spending.
I was panicking because we have seen mortgage rates climb 1/2% over the last three weeks, all but shutting off our refi volume and slowing down our purchase volume.
Here’s What Is Really Interesting
Analyst Chris Whalen predicted on his Saturday podcast that oil prices would stay close to $100 per barrel through the end of the year because of how “messy” the Iran situation is and because of how long it takes to bring oil infrastructure back online.
But he was proven wrong within 36 hours, as a single comment by Mr. Trump about “good conversations with Iran” immediately brought oil prices down $15 per barrel.
As a result, interest rates fell sharply and the stock market shot higher.
This is additional proof that “oil is everything” and illustrates how quickly the oil market can adjust to changing conditions.
While oil prices will continue to bounce up and down, imagine what will happen when the war ends for real…
Oil prices and rates will absolutely plummet.
