Trump Tells Homebuyers to Wait for Lower Rates to Buy. Sigh.
In late February, President Trump effectively told homebuyers to wait to buy because rates would be much lower.
This was really bad advice for three reasons:
1) When rates fall significantly, the market heats up every time – and there is more competition for homes – which drives up prices.
We saw this last week when four of our pre-approved buyers bid on a home with over 20 offers, right after rates troughed.
And yes, there was an exception to this rule. It was called “2008,” when we were swimming in foreclosures with four times as many active listings. 2008 will not repeat…for about 10 reasons that I have addressed many times in this blog (far weaker lending standards fostered foreclosures; twice as much building prior to 2008 exacerbated inventory issues; homebuying demographics troughed; etc.). We all need to get 2008 out of our heads, as it was an anomaly.
2) There are these things called “refinances.”
I sent this to President Trump today:
“Dear President Trump, when interest rates fall, borrowers can refinance into a lower rate. Even better, if their loan amount exceeds $250,000, lenders can cover all closing costs! And even more better, refinancing is much easier nowadays. So, there is no reason to wait for lower rates to buy.
Sincerely, Jay.
P.S. I love your hair.”
3) No Person Or Entity Can Control Interest Rates – Ever – Not the President, Not the Fed, Not Congress, Not Taylor Swift.
Yes, I expect rates to fall for reasons I have pointed out many times (falling rents, falling energy prices outside of wars, weak labor markets, etc.) and so does President Trump. But, as we have seen many times, nobody can predict or control rates.
The Fall of 2024 is a great example! Everyone (the Fed, President Biden, the mortgage and real estate industries, Taylor Swift, etc.) desperately wanted rates to fall, and the Fed cut the short-term Fed Funds Rate by 1%. But long-term mortgage rates increased by 1%!
No one knows for sure whether rates will fall, and waiting for them to do so is often a fool’s game. 2023 is another great example: numerous prominent analysts expected rates to plummet in response to a recession, but it never happened.
Oil & Rates Up AGAIN
Oil prices (WTI) spiked up to $90 per barrel (from only $66 prior to the war), and rates rose again in response.
Interesting thing number #1: Inflation fears trump weak labor markets. A very weak jobs report surfaced today, which would normally have caused rates to plummet. But higher oil prices outweighed the very weak job numbers, and rates rose.
Interesting thing number #2: Oil spiked far higher when Putin invaded Ukraine. WTI oil prices were in the $80 range when Putin started to build up his forces in anticipation of his Ukraine invasion in early 2022. After the invasion, prices spiked up to almost $116 in a few weeks – a $36 increase (vs. the $24 increase we’ve seen recently). What is interesting, though, is that Russia was only responsible for about 10% to 12% of the world’s oil production in early 2022, vs. 20% for the Persian Gulf region. This implies that the markets thought the Ukraine war would last longer and be more severe.
