10% Home Loans Right Around the Corner

[Matthew Crivelli]

Are we still singing the same old song? "Prices won't come down!" I hope not, remember folks there is a lag between rate increases and falling equity prices. We are still running on comps from late 21 / early 22. If you are in the R.E. industry, especially on the home buying / selling / loan side of things. I hope you saved your nuts the last few years because it's going to be a cold winter. Investors with cash, will come out on top as the deals roll in. People who over leveraged, will start to fold or at very least, will have to wait this inflation cycle out. THE FED WILL BREAK THIS MARKET.

P.S. - If you're a R.E. Agent... Stop telling homeowners they can "date the rate". If a home owner buys at full price right now, they will likely lose their 3%-10% equity (down payment) and won't be able to exit the home via refi or sale unless they come out of pocket. Warn your clients about the risks, last time we saw an inflation cycle it was OVER 10 YEARS UNTIL IT WAS CORRECTED.

[Jay Hinrichs]

Quote from @Matthew Crivelli:

Quote from @Bill B.:

If you are going to lose equity due to rate increases, then you are going to gain equity as rates decrease. So there shouldn’t be any need to bring money to refinance. I BELIEVE everyone agrees if rates dropped 2% today prices would instantly increase. So if they increase 2% and then decrease 4% to a still high 5%, prices should be higher than today. So they would actually gain extra equity. 

You say rates are going to 10%. Then prices have to drop 25% just to keep the payment the same. If they’re only going to lose 3-10% then buying today is the smart move without even considering the rent saved. Even if rates only went to 8.5% and you were just click baiting with 10%. 

I would never buy a home because a realtor tried to predict the future, but I also wouldn’t continue to rent instead because a poster on the internet with no dog in the fight and nothing to lose, who didn’t know my financial situation or even geographical location told me not to. Otherwise nobody would have bought after the crash. Everyone said that was a bad idea.

Maybe you should start selling your properties now if values are declining. What? You’re not going to take advice from some guy on the internet that doesn’t know your situation or goals? Good. :-)

@Bill B. 

The 3% -10% is the average down payment, not the actual equity loss we could see. So the borrower puts down 10% but loses 25% of equity, they are upside down. I don't care if this lasts for 6 months, you never want to be in this position. Also thinking prices will rebound that quickly is insane, it took 5 years to get the lost equity back from the bottom in 2008. If we're adding the two years it took to get to the bottom, 7 years to get back to even. I believe this is 2006 all over again. I'm warning my clients BUT hoping for the best. Obviously, people don't have to take anyone's advice, but its always good to hear differing opinion's. :-)  

P.S. let's revisit this post in 6 months, when the comps run dry and rates are at 10%...

this is interesting  because we also are not talking about supply in prime markets.. Building new homes is already slowing down  and I suspect starts for SFRs will be down 50% at least  I know I am not starting anything that is not pre sold with a very large deposit  I have two now both cash buyers my little project has has zero buyers at less than basically 20% down.. and if values dropped 25% and average profit is 15% for builders  you can see that math no work.  It all comes to a screeching halt.. materials and labor will come down some I was just at an economic conference and they thought 5 to 10% but these prices for building materials are sticky .  Areas of the country that have a lot of economy based on new construction ( Texas ) could be some of the hardest hit.

Now to Bills point we dont build any homes for a few years or no where near to keep up with population and birth rate etc. When things come back to some sort of aggressive market now all of a sudden we are right back into that NO inventory zone.  Keep in mind developers right now are not going to plat lots and build the infrastructure for communities if they cannot build right away.. so you will have a big lag time just in land use approvals.  I am working on one now were we will get the approvals but I am already baking in additional hold time to when we start the underground.  

And at some point when mortgage rates get to a point no one is going to borrow money what then.. lenders have to lend to make money .  The fed wants to kill jobs they said it they will do it with this course of action.  I was just at a closing this week and I could see the stress on the Escrow officer.  He was asking me He is younger with not a big following etc.. Lenders title companies etc etc once things slow fixed over head staff is then let go.  But life does go on  I have a walk through with a client tomorrow who is closing next week full price no concessions ..  20% down 675k deal.  And 3 weeks from now the home next door same price  but all cash.   But there is no question we are not going to enjoy the same velocity or anywhere near it that we enjoyed last 8 years or so.

I also sold my higher end spec 2 weeks ago I was doing punch today  ( making sure it got done  ) you know pick up the crap under the house clean this clean that I cleaned the 5 toilets personally LOL. But this house value was 1.5  and we got 1.45  and my buyer sold their house for 1.9 that they paid 1.1 for in 20011 and they are going to put ONE MILLION down.. so for them rates were not an issue.  Lastly the day of Hey I do no repairs is long gone luckily we build a solid home to home inspector just found nit pick crap but they wanted every single item on the home inspection done  and it was sure thing no problem .. no pushing back on those anymore.