Mortgage Rates Decline: Tips for Homebuyers and Investors

(0:00) And so, of course, that brings us to today, Monday, August the 5th, when I'm recording (0:04) this episode. (0:04) The Dow opened up 1,000 points down, seeing its worst day since 2022, when rates began (0:10) their quick rise upward. (0:12) The magnificent 7 that I mentioned earlier erased $1 trillion in market cap value.

(0:17) And also, suspiciously, most of the trading platforms out there, like Vanguard, E-Trade, (0:21) Robinhood, Ameritrade, Swab, and Fidelity, all reported, quote, outages during the sell-off, (0:28) not allowing traders to buy or sell anything for several hours this morning. (0:32) And with all that, somehow, at the close of business today, mortgage-backed securities (0:36) sold off, most likely causing rates to actually go up a little bit tomorrow. (0:41) And that's not supposed to happen when the stock market tanks.

(0:44) People move money out of stocks into bonds for safer keeping. (0:48) That's what typically happens, and what would have been expected to be seen today. (0:52) So, what the hell is going on? (0:54) What caused all this? (0:55) And where does it go from here? (1:04) Hello out there to all you interest rate investigators.

(1:08) So mortgage rates are falling at a pace that we have not seen in quite some time. (1:12) But at least right now, so are stocks, so is crypto, treasury yields, and everyone's (1:18) general faith that this economy will experience anything close to a soft landing. (1:23) Have no fear, though.

(1:24) You have found your way to the Texas Real Estate and Finance Podcast Market Update for (1:28) the week of August the 6th. (1:29) And today, we're going all in on the economy and interest rates, because the world's on (1:34) fire right now, and we need to sort through all of it to make sure that you know what (1:38) all this means. (1:40) I'm your host, Mike Mills, a North Texas mortgage banker with Geneva Financial, and I come to (1:44) you each week with a healthy plate of word salad, dumping my hours of internet browsing (1:49) onto you.

(1:49) So you can spend more time doing what you do best, helping people buy and sell real (1:54) estate. (1:54) And today we're going to do things just a little differently since today is what I would (1:58) call a very special day. (2:00) So what are we talking about? (2:01) Well, in one word, rates, rates, rates, or at least where rates are, what happened to (2:07) get this big move in rates, what could possibly drive rates down further, what's coming next, (2:13) and what all this means for the real estate market for the rest of this year and into (2:17) 2025.

(2:17) But before we get rolling, if you find today's episode helpful, enlightening, entertaining, (2:22) or even just a little bit enjoyable, please do an old mortgage guy a favor and share it (2:27) with a friend. (2:27) You don't have to share it with everyone, although I would really love it if you did. (2:31) Just text it over to someone you know who might find my perspective valuable to their (2:35) business.

(2:36) And if you want some extra credit and you happen to have a client looking to refinance (2:39) or purchase a new home anytime soon, send them my way. (2:41) This podcast is my hobby, but mortgages are my specialty, and I'd love to help your clients (2:46) out. (2:46) Okay.

(2:46) Now starting off as always everyone's favorite question, Hey Mike, what are the rates? (2:51) Well, according to mortgage news daily, as of August 5th, 2024, the average 30 year fixed (2:57) conventional mortgage rate is 6.34%. (2:59) The average 30 year FHA rate is 5.75%. (3:04) The average 30 year VA rate is 5.79%. (3:08) And the average 15 year conventional rate is 5.88%. (3:12) That's right. (3:13) Fives in front of everything. (3:14) You heard that, right? (3:15) And Oh, by the way, the average jumbo rate is 6.61%. (3:19) So the 10 year treasury yield, which is a measuring stick for where mortgage rates are (3:22) headed fell to its lowest level since December of 2023.

(3:25) Now this is good for mortgage rates, but not so great for the economy. (3:29) Last week, unemployment ticked up to 4.3% reaching its highest level since July of 2017. (3:34) And this along with some weaker than expected reported earnings last week from Intel, Chevron, (3:40) Google, and Microsoft triggered a stock market sell off like we haven't seen since the start (3:44) of the pandemic.

(3:45) Again, this is all good for mortgage rates, but if homeowners don't have jobs and are (3:49) losing money in the market, lower rates won't necessarily trigger a housing boom anytime (3:53) soon. (3:53) And right now everyone is very much in a wait and see stance for this market sell off. (3:57) But last week could have been the start of the much anticipated market adjustment that (4:01) I've been talking about here for months.

(4:03) This ride's about to get a little bumpy, but if you got cash and you can hold out, there (4:07) could be some very strong buying opportunities for stocks and real estate in the coming months. (4:11) So hang in there. (4:12) Now let's just do a quick review of exactly how we got here and then where we might be (4:17) going in the coming months.

(4:19) So I've spoken on this ad nauseum on the podcast in the past, but here's what I would call (4:23) the cliff's notes version of how we got to this place. (4:25) Because it's really important to understand what happened in order to be able to get (4:30) an idea of what might happen in the near future. (4:32) So we're going to go back in time a little bit since the great financial crisis in 2008 (4:37) mortgage rates have been basically below 5% with a few periods slightly above 6% for (4:43) over a decade.

(4:44) And this was really cheap money, at least historically speaking, because prior to that (4:48) mortgage rates fluctuated somewhere between seven and 9% for the previous 20 years. (4:52) And this cheap money had millions of people all over the country buying real estate at (4:57) an unprecedented pace, which for the American consumer was a great thing. (5:00) Then in 2020 when COVID hit and the economy was shut down for almost a year, the federal (5:05) reserve and the US government felt it necessary to basically mainline Red Bull into the US (5:11) economy and make money essentially free to borrow and then issue trillions of dollars (5:16) in stimulus to business and individuals like we have never seen in the history of the country.

(5:21) And if you paid attention at all during econ 101 class, you'd understand how supply and (5:25) demand works because when you have too many people chasing after too few goods, prices (5:30) go up. (5:30) And we saw this in every aspect of the economy, cars, food, energy, and yes, housing, which (5:36) is why we saw home prices jump 40 to 50% in just a couple of years. (5:40) And because of this incredible inflation, this caused the federal reserve to react and (5:45) raise interest rates at the fastest pace that we've seen in almost 40 years, essentially (5:50) taking this economy that was humming along like a Lamborghini down the freeway and slamming (5:54) on the brakes.

(5:55) So everything's good. (5:56) Problem solved, right? (5:57) Well, a lot of people thought so. (5:59) Most Americans went about their daily lives, taking their kids to school, working their (6:02) jobs and paying their bills as if everything was fixed.

(6:05) Yes, prices were still high, but the Fed was fixing the problem. (6:08) So people just kept living their lives. (6:10) Now the problem was is people's incomes were kind of starting to slow and the costs for (6:15) living were still pretty high.

(6:16) So many folks turned to credit cards with maybe the idea that the issues that we were facing (6:20) were temporary and that things could be turned around and that once things turned around, (6:25) then they would just pay that debt off. (6:26) The only problem was the higher rates. (6:29) You see, the debt on that Visa card was now coming at a 25% interest charge, but every (6:33) single month, the average American heard that jobs were plentiful, spending was up, and the (6:38) economy was one of the best that we'd seen in a very long time.

(6:41) So people were thinking if everyone else is doing well, then it must be fine. (6:44) Even if I'm struggling a little bit now, if you've been listening to this show, you know (6:48) that I've been saying for several months now that things aren't as rosy as they have seen. (6:53) And Oh, by the way, I didn't invent this theory on my own.

(6:56) I'm not smart enough for that. (6:57) But if you pay attention to the people who are trying to tell you the truth and not just (7:01) what you want to hear, then you got a little bit of a different story, especially over the (7:05) last couple of months. (7:06) You see, slowly but surely, we all started to understand that jobs were not as strong (7:10) as they've been reported.

(7:11) We haven't added any full time employment to the economy in over a year. (7:15) And Oh, by the way, all the stated job gains were mostly part time jobs. (7:18) And those that weren't were government jobs, jobs in the medical profession and (7:22) hospitality.

(7:23) And these particular jobs are not the type that drive an economy. (7:26) But hey, GDP was up as well. (7:28) But when you dig into the numbers there, it was mostly government spending that was (7:32) holding up GDP.

(7:33) And that government spending had grown our national debt by 11 trillion dollars in the (7:38) last four years, something that previously took us 220 years to get to 11 trillion (7:43) dollars in debt. (7:44) OK, OK. (7:45) But the stock market was also breaking records.

(7:48) Retirement accounts and hedge fund portfolios were at all time highs. (7:51) However, aside from the magnificent seven stocks, Microsoft, NVIDIA, Apple, Google, (7:57) Amazon, Facebook and Tesla, the rest of the S&P 500 had only had modest gains over (8:02) the last two years. (8:03) In fact, in 2023, those seven stocks made up almost 60 percent of the entire market (8:08) gains for that year.

(8:09) And such a concentration of value in so few stocks has only occurred a few times in (8:14) history. And in most cases, it was followed by big drawdowns in the market. (8:18) Oh, and much of the value in those magnificent seven stocks was not based on (8:22) anything like price to earnings ratio or actual sales, which historically have been (8:26) how you value the company, but instead the promise of AI and how it would impact jobs (8:32) in our economy on the whole.

(8:33) But again, most people don't pay attention to stuff because how can you? (8:36) You've got your own life to live and your own people to take care of on a day to day (8:40) basis. But then last week happened and it wasn't a major event, but just a couple of (8:44) data points that drove the market in an uncertain direction. (8:47) First off, we had weaker than expected earnings reports from companies like Intel, (8:51) Microsoft and Google showing that the tech sector that had been holding the market up (8:56) wasn't quite doing as well as people had hoped.

(8:58) And that was just kind of the cherry on top from the previous weeks where companies (9:02) like McDonald's, Walmart and Dollar Tree started telling investors that their sales (9:06) were slumping and not actually that great and having to adjust future expectations. (9:12) Amazon was still doing pretty well, though. (9:13) They always seem to do well.

(9:14) Then last week, the jobs report came out for June and showed that we had added much (9:18) fewer jobs than expected and unemployment spiked up higher than anybody had (9:22) anticipated. And this caused many investors in the market to start quietly moving their (9:26) money from the stock market over into the bond market, whereas those of us in the (9:31) mortgage world were celebrating because rates actually fell almost half a point in (9:35) just a couple of days, which is incredibly unusual for mortgage rates. (9:38) And then over the weekend, we found out that Warren Buffett, the most prolific investor (9:43) in the history of the world, sold off 50 percent of his stake in Apple and is right now (9:47) holding more cash on the sidelines than at any point in his company's history.

(9:51) He's currently sitting at about 300 billion dollars in cash that's not invested (9:55) anywhere in the market. Oh, and what you also may have missed last week in the news (9:58) cycle, the leader of Hamas was killed by Israel in Iran's capital for everyone to see. (10:03) Setting off a chain of events that at the time of recording this, we don't quite know (10:07) where those are going to go.

But right now, it's looking like Iran could attack Israel (10:12) at any point in the next couple of days, dragging the entire globe into a conflict that (10:16) nobody wants. And so, of course, that brings us to today, Monday, August the 5th, when (10:20) I'm recording this episode, the Dow opened up a thousand points down, seeing its worst (10:25) day since twenty twenty two when rates began their quick rise upward. (10:29) The magnificent seven that I mentioned earlier erased one trillion dollars in market cap (10:33) value.

And also suspiciously, most of the trading platforms out there like Vanguard, (10:37) E-Trade, Robinhood, Ameritrade, Swab and Fidelity all reported, quote, (10:43) outages during the sell off, not allowing traders to buy or (10:47) sell anything for several hours this morning. (10:49) And with all that, somehow at the close of business today, mortgage backed securities (10:53) sold off, most likely causing rates to actually go up a little bit tomorrow. (10:58) And that's not supposed to happen when the stock market tanks.

(11:01) People move money out of stocks into bonds for safer keeping. (11:05) That's what typically happens and what would have been expected to be seen today. (11:09) So what the hell is going on? (11:11) What caused all this and where does it go from here? (11:14) Well, the story right now, the thing that kicked everything off this morning was the (11:18) Bank of Japan announcing that they were raising interest rates, causing investors to (11:22) panic a little bit.

Now, why did investors panic? (11:24) Well, according to those in the know, there was something called the yen carry trade. (11:29) This is probably something that you're going to be hearing about in the news quite a bit (11:32) in the next couple of days. And because of this money was moved out of U.S. (11:35) markets to pay off debts in the Japanese markets.

(11:38) So the way this works is investors all over the world used Japanese yen, (11:43) which could be borrowed at much lower rates than U.S. (11:46) dollars, and then converted those yen over to U.S. (11:50) dollars. They then use those dollars to invest and earn greater levels of interest (11:54) in the U.S. market than they could with the yen that it was borrowed from. (11:58) And see the difference in the cost to borrow the yen and the interest earned on the (12:03) invested U.S. dollar is where investors were making profits.

(12:07) So over the weekend, (12:08) when the Bank of Japan announced that they were raising the cost to borrow their (12:11) currency, (12:12) investors rushed to cash out their U.S. (12:14) investments and pay off their Japanese debts in order to not get caught owing (12:18) more when the rates spike. (12:20) And then this frenzy of buying and selling caused a panic in the market that (12:23) supposedly caused this major sell-off that we got to this morning. (12:27) Now I'm sure over the next couple of days, (12:28) we're going to find out a whole lot more about what actually happened and what (12:31) the main cause was, (12:32) which could be this or that this was just the trigger for an underlying issue (12:36) that was already there.

(12:37) My guess is it was just a trigger for an underlying issue that already existed. (12:41) But again, (12:42) I am no genius when it comes to this stuff. (12:43) So that is supposedly what happened that caused today's massive sell-off.

(12:47) And the other piece of this is that anytime there's instability in the world, (12:51) money typically does not like that. (12:52) And right now we could be on the verge of a global conflict involving Iran, (12:56) Russia, (12:57) and maybe even China. (12:58) We had a former us president have an assassination attempt against his life.

(13:02) Then the current us president stepped down for running for reelection and (13:05) basically hasn't been heard from since. (13:07) And his replacement who was selected and not necessarily elected has not had (13:12) one interview or press conference where questions have been asked of her. (13:16) And other than a few campaign rallies where she's reading from a teleprompter (13:20) has basically not been in public.

(13:22) Currently there's a hurricane or tropical storm, (13:24) depending on how you classify it. (13:26) That's tearing up the Florida coastline and working its way up the East coast (13:29) over in Europe. (13:30) The UK is rioting over immigration and what is being described as the worst (13:34) disorder that the UK government has faced in over a decade.

(13:36) And seeing as money doesn't like volatility and then having the bank of Japan (13:41) decide that they were going to raise rates led to the stock market today, (13:44) having one of its worst days in history. (13:46) So does that all mean that the world's coming to an end? No, of course not. (13:50) But things ain't great.

However, (13:52) even with all of this market sell off today, (13:55) overall on the aggregate for 2024 the market's still up. (13:58) It's just not currently headed in the right direction. (14:01) So then the real question becomes what happens from here? (14:04) Should you sell every stock that you own and liquidate your 401k? Well, (14:07) first off, (14:08) let me say that I am a mortgage guy who talks about all this stuff as a hobby.

(14:13) So don't take any advice from me. I'm learning this as I go, just like you. (14:17) So let's start there.

Second, (14:19) I have no idea where all this goes or what happens from here, (14:23) but I can easily argue both sides. On one hand, (14:27) markets go through corrections and news panics, (14:29) investors to sell all the time. (14:31) We have certainly seen much worse days in the market and given enough time, (14:35) markets always bounce back, or at least they always have.

(14:38) You had the great depression in the 1920s hyperinflation in the eighties with (14:42) black Monday in 1987, (14:44) there was Y2K and the.com bubble in the early two thousands. (14:48) And of course the great financial crisis in 2008 and most recently the COVID (14:52) pandemic. And yet we're all still here eating McDonald's and watching Netflix.

(14:57) So no need to panic. (14:58) And if you're under 65 and dollar cost averaging your investments, (15:02) most likely things will be fine given enough time. But on the other hand, (15:06) we are experiencing global turmoil at a level that we haven't seen in quite a (15:11) long time.

(15:11) And the U S government has racked up more debt in the last four years than we had (15:15) the prior 220 years. And unfortunately right now as a country, (15:20) we seem to be more divided than we've ever been. (15:23) And all of this volatility leaves room for things to happen that we just can't (15:27) see or predict.

(15:28) Now my bet is that we are just experiencing our version of the latest crisis. (15:33) And then in five to 10 years, (15:34) we're going to look back at this period of time and everything will be back to (15:37) normal, whatever that level of normal is. But in the meantime, (15:41) you need to be paying attention, (15:42) especially if you have money invested anywhere or live in an area where unrest (15:46) could be a possible concern.

Because at times like these people and governments (15:50) can take advantage of uncertainty. Never let a good crisis go to waste. (15:53) They say now considering all that really fun stuff that we just discussed and (15:56) seeing that this is the Texas real estate and finance podcast.

(15:59) I of course would not be doing my job if I didn't speak about the one thing that (16:03) I do know a lot about. And that is real estate right now. (16:06) Mortgage rates are down and they appear likely to be headed down further in the (16:10) coming months.

But housing inventory is on the rise. (16:13) And unfortunately when there's market uncertainty, (16:15) people often don't want to make any big purchases. (16:17) So what does this mean for the housing market for the rest of 2024 and going (16:21) into 2025? Well, right now with all this turmoil that's going on, (16:24) the market's now actually pricing in three possible rate cuts for the rest of (16:28) this year with some people calling for an emergency rate cut before the (16:31) September meeting.

Now, is that going to happen? I don't think so, (16:35) but ask me this question tomorrow because new events can certainly change my (16:39) mind on that. So rates are likely to keep declining this year. (16:42) And so that means it could make sense for you or your clients to refinance a (16:45) mortgage or possibly take equity out of an existing property to pay off credit (16:49) card bills or add to a house that you don't want to move out of because it's (16:53) got a two and a half percent interest rate.

(16:54) And if you want to know if that makes sense, give me a call. (16:57) I'm happy to walk you through it. But keep in mind when it comes to refinancing, (17:00) talk to a mortgage professional to get a gauge on where rates might be headed for (17:05) the immediate future.

You see, (17:06) you don't want to refinance at 6.25% and see rates fall to (17:10) 5.25% six months later. (17:13) Sometimes a wait and see approach isn't a bad idea. And Oh, by the way, (17:17) there's going to be a lot of mortgage folks out there telling you that now is (17:21) the time, but before you make your decisions, (17:24) talk through it and get more than one opinion, not just on what rates are, (17:28) but where rates are going.

Remember, (17:29) it usually costs money to refinance and you don't want to spend thousands of (17:33) dollars to just have to do it again. When rates fall, (17:37) even further rates are declining. (17:38) And I don't think that they're going to jump back up anytime soon.

(17:42) So take your time, weigh your options, (17:44) and then decide if it makes sense for you. It is a case by case basis. (17:49) So no, before you go.

And as far as buying a home is concerned, (17:53) if I had to guess, (17:54) I would say that we will probably see continued slowing of sales as we head (17:58) into the winter, partially because this is an election year. (18:01) And because there seems to be a lot of volatility in the market. (18:04) And when the market's in turmoil, (18:05) people often sit on the sidelines or decide to sell because they have to make a (18:09) move.

And this could create some good buying opportunities in the coming months. (18:14) And I do think that as long as there aren't any catastrophic events that occur (18:17) between now and then things are going to settle down as we get past 2024. (18:21) And that means 2025 could shape up to be a good buying season as (18:26) affordability becomes better and better lower rates and more inventory, (18:29) more opportunity for homebuyers.

(18:32) But remember it has to be the right time for you or your buyer. (18:36) Don't let home prices or interest rates dictate the right time for you to buy. (18:41) Personal circumstances should always decide when that right time is.

(18:45) And no, by the way, (18:46) every market's not going to be the same because we all know real estate is a very (18:50) local industry. (18:51) So it could depend on where you live or where you want to move to. (18:54) If now is the right time or if you need to wait, (18:56) but as a real estate professional, (18:57) if you can hang on tight and make it through the rest of this year, (19:01) I really think 2025 could be the turning point when we start to see this market (19:05) shift, at least as it pertains to housing.

(19:08) Now I can't say what's going to happen with the rest of all this chaos that's (19:11) going on, but I really do think housing is going to rebound next year. (19:15) And I also believe that those who keep grinding it out each week to carve out a (19:19) living in this crazy industry are going to reap the benefits when that time (19:23) comes. So things may seem a little dark right now, but I feel confident.

(19:27) We're going to make it through the other side and see that light. Well, (19:29) that's it. Just a quick one today.

(19:31) It's a little bit different than what I usually do, (19:33) but I would say today is a little bit different than most days that we've (19:36) experienced recently. (19:37) I genuinely hope everyone stays safe out there and protects their portfolio. (19:41) But remember when markets are down, (19:43) there's always opportunity on the other side.

(19:45) You just got to educate yourself and find your path through all the noise. (19:50) And if I can help you even just a little bit along that path, (19:53) then my time is so very well spent here. So as always, (19:57) be great humans, keep grinding because life is what you make it.

(20:01) So make it great. See you next time.