Mortgage Rates - What Does It Mean In Real Estate?

Mortgage rates, or interest rates in general, are important factors in predicting where the market is headed. This is because interest rates are often set based on supply or demand. As a whole, interest rates effect more than we know. Banks lend at current interest rates to people or companies based on credit worthiness, and the lower the rates are, the more demand there will be for loans. If there are low rates on CD's or savings accounts, there will typically be more interest in taking out loans to invest in businesses that generate higher rates of return. There are a bunch more ways that interest rates effect our economic system.

Typically in Real Estate, the lower the rates are, the higher they appreciate in value. The central banks are in charge of setting the rates in order to drive the most economic return or output while balancing the risk of asset bubbles. This is why there are always ebbs and flows with interest rates. Since the great financial crash of 2008, interest rates have historically been rock-bottoming year over year for two decades because it was the only way that there could have been economic stimulus. It was something called quantitative easing, where the Fed started buying up assets in order to drive prices and liquidity, and thereby lowering the yield on them. It was also when we started selling treasury bonds to China and other governments in order to invoke the same results. Now, there seems to be limbo in interest rates. There seems to be a gradual increase of rates, and then all of a sudden we're back to lowering rates a smidgen. Part of this has to do with some trade tensions with China: easily the biggest owner of US T-Bills. The general rule of thumb is that the more you buy T-Bills, the more it's values drive up, and the lower the yields become. Because China owns about $1.18 Trillion in US debt, they are able to manipulate the markets somewhat. They have since been driving up the US dollar in order to make the yuan cheaper in order to take advantage of exports in US markets ironically. Using this same method, they are able to do the opposite should the US embark on trade sanctions with them.

In an uncertain market, where at times the Federal Reserve are at odds with the executive branch of government (or the Trump administration), rates are uncertain. Just when we thought rates were going to stop increasing for a while, the Fed hiked rates again around late November of last year in 2018 making it a combined 3 rate hikes for the year. With 2019 being uncertain with trade tensions, the Fed started to change its tune and then lowered rates twice consecutively.

What I think this means for the Real Estate market is more uncertainty in the horizon. I've noticed personally while sifting through homes in the MLS for clients, that home prices are slightly going down, but still remain high comparatively to what they purchased it for even just 5 years prior. Further, many homes either priced to sell or sold higher than market value tend to get bidding wars from buyers who want deals or lower than asking for either of the two. For the latter, there tends to be higher days on market and for the former, there tends to be a risk of either selling it too low or going above asking price but still below even just 6 months prior prices.

I believe that should trade tensions increase, rates will continue to remain volatile and home prices bear the brunt of those costs. The higher the rates get, the less banks will want to lend; and then after that should rates start to pivot drastically and lower like what happened this year, banks will still increase their risk management. At the end of the day, the more uncertainty there is, the more that banks will be cognizant of borrowing costs and the risks attached to them.

My personal opinion is to take your profits now by selling now while there is still a lot of demand, and/or downsize or upsize to a beautiful home with the same amount of space or more at less than what you sell your house for. This is assuming you have 80 to 100% of home equity, and that you would be receiving a profit net-purchase. This, in my opinion, is the best risk to reward ratio for anyone in the market. Even accounting for a potential, unlikely but probable event, that markets still rise in 2020 and beyond, this is the best risk to reward scenario in my opinion. If you're smart, you will take advantage of the inefficiency of the market, and John Nash Equilibrium: one either wins or loses, both parties win, both parties lose, or one party loses while the other wins.

Message me if you have any questions or concerns, or if you want to start your home buying or selling today. Email me at [email protected] or call me at (646) 435-1975. Thanks for reading. #RealestAgentInTheGame

Disclaimer: This blog post is going to be informal and more in line with my opinions and not so much based on facts. Although there will be some data in there, most of the predictions or subject matter will be based on my opinion only. If you would like to get better clarity with Real Estate economy; loan; or finance, hire a professional. 
Mortgage Rates - What Does It Mean In Real Estate? Mortgage Rates - What Does It Mean In Real Estate? Reviewed by Alex Sung on December 01, 2019 Rating: 5

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