Show - October 7, 2023
Good morning, WFMD listeners. I'm Jay Day.
And Christina Day.
With Real Talk Real Estate. Thank you for tuning in. We know you have to get up bright and early to hear this. So we're into October. Let's talk details about what we've seen over the last few months with what's going on with interest rates, what type of impact that has on the market. What are we seeing out there?
Yeah, I think really the volatility we're seeing in interest rates is absolutely spilling over to the real estate market and affecting buyers and sellers alike. Definitely impacting buyers, making a decision and sellers making a decision to sell. Also affecting what we're seeing in terms of the offers that we're getting, how many offers we're getting. We're seeing buyers step to the sideline a little bit. We experienced this, what about a year and a half ago, and it did make a pretty impactful hit to the real estate market and really shifted things dramatically off of the trajectory that we had been on from mid 2020 to mid 2022. So I think it's important that we look at where we were and where we are.
Well, one of the things in September last month, the FED decided to hold steady, and we always say that's not a direct correlation. They've been holding steady for a bit now where they've had some meetings, but the mortgage rates, as we say, it's not a direct correlation, and the mortgage rates are really tied to what's going on, the volatility of the stock market and all of those fun things. But let's talk about, I think if we go back to, what was it, June? Is that what you?
Yeah, I took a look back over the last few months, and so if we look at May, right? Let's look at the beginning of May, beginning of May for a 30 year fixed conventional loan, you could get 6.125 with no points if you made under 150,000 household income or borrower income in the Frederick County area. And if you make over 150,000, it was 6.5 with no points for a conventional loan, so low to mid sixes for a conventional loan, and government loans were at 6%. Well, 5.75 to 6%. So that's pretty great. You have something with a five in front of it or a very modest six. So then as we rolled into June,
I have a feeling you're going to talk about, this is the gas price thing where we were two something, then we went up to four something, then we're hovering in the upper threes, low fours and people
And you thought that was good, right? Yeah. You got all excited. Yeah. So end of June, by the time we got from the beginning of May to the end of June, that had gone up to 6.875 for those under 150,000 and 6.99 for those over 150,000 on a conventional loan. Government loans were sitting at 6.75. So in the span of about two months, we saw a change by about three quarters of a percent on conventional, and we saw a change of about 1% on government loans. That's a big jump in two months, but we're not done yet. That's not weird.
Wait, hold on, hold on. There's more.
So as we hit looking at July, we were kind of flat 6.875, 7, 6.75. So we're still hovering in that upper five territory. And then let's look at September, mid-September, we're creeping into the sevens. We've got 7.125 to 7.375 as our range for rates. And here we are end of September, we're at 7.375 to 7.625, on a conventional and 7.25 on a government.
So creeping very, very close to eight.
Yeah, we're firmly in that mid sevens now. So we went from something with a five to now something well into a seven.
Well, all I'm going to say is if you're listening to this and you like to get more frequent updates, Tom and I do our podcast, and if you go back, I actually talked about the changes and what people were estimating. The mortgage experts were expecting were going to happen with interest rates, and they were wrong. And on the podcast I said, I know this is going to be wrong. And I said, I think we might hit 8% and we're getting really close.
So I've heard various speculation among industry professionals, and of course none of us have a crystal ball, and if we did, it would be malfunctioning anyway, because all the powers that be and all the things that influence interest rates are really so much outside of any one person's control. But I have heard they're expecting eights, eights, not eight eights pushing into that nine, which could be really catastrophic to what we would be working with from a real estate affordability standpoint.
And it's really interesting because most people in mortgage and real estate, they go through trainings and they tell people, oh, these rates there were higher before. And it's interesting. I've had clients say that to me. I'm like, yeah, but it didn't cost $500,000 for a townhouse,
I'm like, I get that. And I was a firm believer in that too. But we've hit a point, and ultimately what the FED is trying to do to deal with inflation is they're trying to break everything
They're doing a good job.
Well, they have to hit a point where they make the rates high enough that people stop spending, and that's what they've been trying to do. Now, I was a firm believer that we were probably going to hit into the mid eights, but then I forgot and it hit me. I'm like, next year though is an election year.
And I've heard that story too. Yeah.
I have changed a little where I think they might get into the 8-mid 8's, but as we get closer to election, if you want to the hero part of it of all of a sudden
If you want to buy some favor and have everybody feeling good about life. Yes.
I'm not getting political because it's done on both sides. It really is. All of a sudden things change and everybody makes promises and they don't always deliver. That's part of being a politician, unfortunately. But yeah, it'll be interesting to see, like I said, and it has had an impact on the amount of showings. It's changing people's price ranges or where they look in.
We've seen people be very interested, very hot and heavy, and then they pull back because the affordability factor has changed. I talked with our mortgage lender that we deal with, and we were talking about what's affecting rates going up so much right now. And one of the things that he had said was bonds and mortgage bonds are really oversold right now. So there's a lot of room for them to improve when the market balances out. At the moment, the main driver for mortgage-backed security prices being so unfavorable is due to the FED misinterpreting data such as inflation, unemployment, et cetera. So the market doesn't have faith that the FED is to properly control the situation and has caused bonds to "death spiral lower". And that is a quote from our esteemed lender, Joel, who we love.
And that's where people say, oh, well, they raised the rate. Nobody "raised the rate". The market responding to how the FED is handling the economy is what drives the rate.
And he nailed it. I mean, the FED has been trying to, they're trying make people pacify by we're holding steady, we're not making a change, but the people with the money that are doing the investing, we don't trust you. We know this is not really what's happening. So they're making their adjustments, and that's what's really driving things. They're like, okay, you're not really holding Pat. Something's going on. We don't trust what's happening here. And the same thing, whether they say, oh, inflation isn't happening, or it's only this percent, we all know that the numbers are much higher than what truly gets reported.
Well, let's talk about real quick. You were saying, and I wanted to circle back to this, that when people say, and I've been in the business a long time. I actually realized, I started in 96, 96, 97. So I'm one of those agents that we all make fun of. I've been in the business 25 years. So the reality is though, I had bought my first home in 1996, and there's been this fun little thing on Facebook where people in real estate have been saying, how much did you pay for your first home? Look it up on Zillow and see what it's worth now. So I did that, and in 1996, I paid 156,000 for it. Today it's worth 429, right? Okay, great.
Well, it's estimated.
Let's be real.
But it is actually probably in that ballpark. So here's the truth to what you said. When I bought that house, my rate for a seven year balloon was seven and change. I remember it very clearly because my lender at the time was explaining to me what a balloon was, and I thought, oh, okay. I didn't know anything. I'm 21 years old buying my first house, if that's what it is, and that's what allows me to afford this house. But it was only 159,000 or 156,000. Now granted at the time I made 30,000 a year. So the cost of living was different. The cost of borrowing money was about the same, actually a little more affordable at this point, but what I had to borrow was far less. Now, we as an average, tend to make more on an average household income now. So there is a different degree of that. But the other thing is gas was not $4 a gallon. Eggs were not $5 a dozen. You go to the grocery store, and we've talked about this many times on the show, is you go to the grocery store and what would've cost you $150 is now 300 bucks,
300 bucks, and you're like,
Got five bags.
I was able to get all the bags in one shot. I didn't have to go up and down. I didn't have.
I even had to pay for my bags. So there are a lot of things affecting affordability for people outside of just the cost of the house. So just keep that in mind that these are things that are pushing on our market, and this is things that will affect the price of your house, Mr. and Mrs. Seller.
What I've been trying to tell the sellers is I try and get a rough estimate of what the mortgage is at the price range they're looking currently. And I tell them, so someone buying this house, if they just did 5% down, roughly, they're looking that their mortgage payment would be $7,300 and the jaws drop. And I'm like, so you have to think about it that way. We have to have the home. It has to hit somebody hard enough that they're going to be compelled to be comfortable paying X amount of dollars every month to live here. And most of the sellers are like, wow, I wouldn't do that.
I wouldn't pay that.
So when having those conversations though, I had one recently with a client in West Virginia, and I'm like, so they're not going to have the discretionary income to paint this room, to paint this, to do that
I'm like, so what we need to do is to take those objections away and again, get back into making the home a little more neutral, a little more appealing things that maybe some deferred maintenance they weren't doing. It might make sense to do now because if you didn't do it and your payment was only 2,000 a month, new persons, $3,800 a month, how are they going to have the extra money?
Yeah. We are starting to see that in the feedback from showings on homes that have not been updated, I won't say renovated, but updated. The feedback comes back with a pretty generic, too much updating at this price, right?
The updating might be paint, appliances, carpet, it might be a little landscaping. And when you have somebody who has the ability as a seller to do these things, it will help you get the home sold and it'll help you get the most possible money that you can get.
And one thing that the FED doing stuff with the rates does impact directly is someone's not going to put it on a credit card, not at 28% interest or 26% interest. You're not seeing as many companies offering the 0% interest or it's for a much shorter period of time. They hope that the people won't pay it. And then you have to pay the interest for all the time that was up to that. So the buyers are getting a little smarter, like, well, hold on. I can't even, and I don't want this blue carpet. I don't want these blue walls or red walls or canary yellow, whatever it happens to be that offends that buyer that they can't handle. They're just saying, you know what? I have to feel comfortable about what I'm paying every month. So I might just wait and see if there's something better that comes along.
And sellers, would be sellers out there. Do me a favor, do yourself a favor. Don't start doing things like painting and carpeting until you have us come in and talk with you about the choices you're going to make. So don't take this and go, okay, honey, let's go to Lowe's. Pick out some carpet. Pick out some paint, because you want to make sure you're picking out things that are going to be appealing to today's buyer's eye. For example, gray was all the rage for the last few years. Guess what's not.
Well, it's the same thing. So we have stagers that we have go out and they will help with that, but also the proof is in we're extremely data-driven we'll pull, okay, so here's what was successful and what's sold. Here's what didn't sell. Let's look at the photos of what sold. Oh, these were going with more of a tan or this, oh, a lot of these homes are doing that luxury vinyl plank. Again, I know you're not a huge fan, but if I look,
I'm warming up to it.
If I see that there are eight homes that sold, and of those eight, six were updated and five of the six had that type of flooring, guess what the buyers are jumping onto. So whether we personally like it or whether you as a seller likes it, and I don't mean this in a rude way, but that doesn't matter. What matters is what are the buyers out there eating up and paying a premium for? Again, the photos sort of give all the answers to that.
And remember, when you're selling, it's not your house anymore, it's a product. We're turning what is your house into a product? And a product needs to be marketable to a wide range of people. So when we talk about neutralizing, a lot of people, they think that it's, well, you're saying my decorations are ugly, or it's not that, you want to appeal to everybody and anybody. And the more minimal you can make things without being barren, the more on trend what people are finding appealing right now you can be, the more you'll capture their interest and drive that demand.
And the way that I try to help people visualize, is you look at a funnel, you use to put oil in the car. As you get towards the bottom, it's tighter and tighter. So if you have a burgundy color on a wall, you're going to be closer to the bottom of that funnel where if you go to something more neutral, you're going up. It's opening it up to more people. And that's just we want to appeal to as much, and like you said, as many as possible, we want to be as high up on that funnel as we can so that we have more eyes, more people interested and more people that would pull the trigger.
And so one of the things, speaking of demand, and it might sound like we're a little doomy gloomy today in talking about the negativity with interest rates and how that can negatively impact you. The good news is we still have a shortage of inventory. So the good news is any of us who are, I'd say 40 plus in age, have a profound remembrance of 2008, especially if you owned a home at that point. Most of us, of this 40 plus age group owned and were very possibly negatively impacted either personally with having a home that devalued and needed to move and had to deal with it as a short sale or a loss, a foreclosure, or you were forced to stay and wait it out and it didn't allow you to make a move. So they are predicting that there is not going to be a crash. And the reason they believe that there will not be a crash is because we still have this shortage of inventory that still is being consumed by the demand of people who want or need to make a purchase. Now, granted, we have far less people who want or need to make a purchase right now because of the interest rates, but they're still there. And I've seen this analogy a lot, and for those buyers who are going, well, I'm going to wait it out because of the interest rates, the good news for you is a buyer with the interest rates being high, if you can imagine that there is one is that you aren't overpaying for the house, you're not in the flurry of activity that we were from 2020 to 2022 where there was 15 offers on the same house. There was escalations going well above asking in some cases a third over asking, we saw 50 and a hundred thousand over asking, we saw people offering to pay massive amounts of money over the appraisal. We saw people waving inspections all together. So as a buyer though, you were getting a two and a half or 3% interest rate. The reality is you were really paying a premium and making sacrifices to get that house at all.
Yeah, it's definitely, I mean, we still have quite a few properties that are getting multiple offers, but it's rare. And I mean, I've had some that people do waive the inspections, but it's not as common. If we end up with three offers, we may get lucky and have one that doesn't. Or you may have one that doesn't do five different types of inspections, they're only going to do one. And in the escalation area, we are seeing things happen, but getting the appraisal guarantees the amounts over is almost, I haven't seen it as much, and every once in a while, we'll get one that's pays 5,000 over. It's not like the 25,000, 40,000 over.
Oh, yeah, no, no. It's very, very different. So the reality is, by paying a higher interest rate, it might be affecting you now, but by getting a better value on the house, what you actually owe and the terms and conditions to which you entered into that contract are definitely more favorable for you. And when at some time that the interest rates do go down, you can always refinance to get a lower rate. You cannot change what you borrowed or what you paid. We don't have time machines for that. So there is not a prediction of a crash. There is a lot of good reasons to make a purchase right now. If you are financially able to handle that payment at the higher interest rate and know that in the future there may become a time where you would be able to get that to go to a lower payment when the interest rates change. Now, if you're thinking, I'm going to sit on the sidelines and I'm going to wait until interest rates change to jump in the game, guess what? Everybody else is thinking that too.
Yeah, you're going to have, because we already have a lack of inventory. And the difference is we're still in the seller's market, but we're not in the seller's market as we were with, again, not having to do anything. You could have had animal stains on your carpets. You could have had, it was shocking that people had to do nothing to their house to get it sold. So it's getting back into, okay, it least needs to be, like you said, a little more on trend, a little more move in ready, because the payments, it all boils down to what am I going to pay per month and am I going to be disappointed every time I write that check or send that electronic payment, I guess.
Yeah. People don't write checks anymore,Jay. Showing your age.
Yeah. Well, it's always funny. Sometimes we do have clients that are on the buy side and there's an earnest money deposit, and we're like, okay, do you want to do a wire or a check? And they're like, I've never written a check. So that's what it definitely makes me feel old, because they're like a check. I don't, I mean, I remember having to explain to people, they're like, I've got it, but I never wrote one. I'm like, okay, well let teach you how to do it.
Lemme show you how to do this, and then now you have to teach 'em how to sign their name too. They didn't learn cursive in school.
Oh my God. Well, we haven't hit that age group yet, but they are out there. So I mean, the bottom line is, and again, like Christina said, we're not here to be talking doom and gloom. We're just being real. And again, that's why we call a show, a real talk real estate.
It's not always sunshine and rainbows.
And again, you're still going to get your house sold. You just may have to do a little more things than you would've had to do last year, but your home is actually, we're still seeing appreciation. It's a much smaller rate, but most people are still selling their homes for more today than they would've a year ago.
And again, the only difference is you just might have to do a couple things to make it look a little more up to date or move in ready.
And buyers, the good news for you is, like I said, we are seeing things that might sit a little bit longer because of their expectation on price or because they didn't do the things. These are great opportunities for you to come in with that offer that you feel is appropriate. If you can withstand the interest rate portion of that, you definitely are going to have an opportunity to get better terms and better pricing. Once those rates come down, you're going to see a revisit to the flurry of activity and the amount of people back out there trying to buy a house. So it's a win on one side, a loss on the other, and then likewise, that shifts and becomes the exact opposite when the rates change.
So if you want to have a non, what's the word I'm looking for? We're not the salespeople,
come in. Yeah. If you're looking for low pressure and just advice, we've said this to a gazillion times, we definitely take a consultative approach. It doesn't always make sense for everyone to make a move immediately, and we have clients that have come back three years later. We've had those that need to do something immediately they think it didn't make sense or they weren't going to, but then there's a life change. Just realized we've been here serving the community for, Christina's been in real estate and lending for, what'd you say, 25?
That's been 20 some odd years. Started at 96, 97 ish.
And I've been doing it 19, I think it's 19 years now. I don't know.
You lose track.
But yeah, we've been around, we've been serving the area, and again, if you're listening, you didn't know. We cover Maryland, Pennsylvania, West Virginia and Virginia, and we've been helping the WFMD and WFRE listeners for over 10 years. Consistently and we're here to help. We're here to talk to you, come up with a game plan that works. That's why we don't have gimmicky things or stuff like that. It's funny because I've been doing my appointments and I'm like, we have in there about our guaranteed sale, and they're like, I haven't heard you guys talk about that in a while. I'm like, yeah, because it's not really needed, but if you want, I'm like, it's wholesale versus retail. If you want, I'll buy your house wholesale right now. I can give you a number right here, roughly. We need to do an appraisal. I'm like, but I can give you, and they're like, why would somebody do that? I'm like, exactly. That's why we don't talk about,
Not right now. Not right now.
When the market starts really shifting into the inventory is on the market for four months, five months, six months, and even when you're in the four month range, you're really considered neutral. But that's where people may be interested in doing that because they need to move. They can't wait four months.
And our job is to get you the best possible terms, whatever that is for you. So if you say, I want to move fast, we'll price it according to what we believe fast is going to dictate and we'll tell you what you need to do to get to fast. If you say, I want to get top dollar, then we're going to give you all the things that you need for top dollar, in your timing and your wants and needs. I have people who say, I don't have the financial ability or the time or the energy to deal with fix up and clean up. Okay, great. Let's come up with a game plan for an As Is what would a true as is really look like and we can work with that and we have many times.
So you can easily reach us and go to dayhometeam.com. Again, dayhometeam.com. You could also call us at 866-702-9038. Again, 866-702-9038. And don't worry, we won't be running to your house with paperwork and a lockbox in tow and a sign like, hey, we're going to photograph your house today or tomorrow. We use professionals for that, but if you do need to do things quickly, we can. But again, there's no pressure. That's what I was looking for earlier. No pressure, none at all. We're here to serve you and to help you when the timing makes the most sense. Again, we thank you for tuning in. I'm Jay Day.
And Christina Day.
With Real Talk Real Estate. We'll be back at you in November.
Hopefully with better news.