Risks Ahead: Reviewing Interest Rates and the Fed

This week I focused on the all mighty interest rate.

This is really important because interest rates are like the gas pedal to our economy/housing market.

**Warning: this information may feel negative, but just keep going to the end where I highlight the opportunities.**

The Federal Reserve (aka The Fed) met Wednesday and announced they were keeping their overnight rate the same, but had some commentary that spooked the markets. 😱

Remember, this is the suggested rate at which banks borrow from each other and has a strong impact on short-term interest rates. This mostly impacts things like credit cards, car loans, savings accounts, HELOCs, etc.

Let's look at history and what's going on with rates to anticipate what could be ahead!

Stand 'em up to knock 'em down!

Should we be concerned about what's coming?

Objectively speaking, history says yes - economic trouble is around the corner.

When the Fed raises rates, they typically do so until a crisis emerges. Then, to try and solve the problem they created, they drop rates back to 0% and around we go.

You may be thinking the 2020 drop was pandemic-induced, but they were dropping rates in 2019 as the beginning of a banking crisis was brewing and then the lockdowns took center stage.

Where's the opportunity here? 🤔

Our most recent history suggests the Fed isn't interested in letting us experience any type of crisis for long.

In 2008, we went through the fire 🔥  and THEN all the money was printed 💰.

Earlier this year, we had major bank failures and within 48 hours over the weekend they had propped up the system.

This doesn't mean they have the magic bullet for every crisis, but they're quick on the trigger to print money when duty calls.

Are 8% rates around the corner?

Moving forward, let's talk about mortgage rates.

I posted a video going over this chart on Instagram and this is a pattern I've been talking about for months now.

I analyze the 10 Year Treasury because as it moves 📈, so do mortgage rates 📈.

If you can predict the 10 Year, you can predict mortgage rates.

Further, now that I'm not a mortgage banker, I'm not subconsciously pressured to think/say rates are coming down - which is what you'll hear from 99% of bankers. 

I'll never forget being in a room of 200 bankers at the start of the year and 199 raised their hand when asked who thought rates would be lower in a year. I'll let you guess who was the only one who didn't raise their hand. ✋

The truth is, it seems like higher rates are more likely than lower rates going forward.

Why? Inflation.

While we've seen a decline since last Summer, it's arguably re-accelerating due to higher energy costs, endless government spending, higher costs due to higher rates, labor strikes, and other factors.

Those colored 🌈, dotted lines are different levels I would expect to see the 10 Year potentially get to based on technical analysis and historical trends. 

Should we get to the orange/red line, 8% rates would here.

What It All Means - The Good News! 

None of this is meant to scare you - although it might be scary.

As I tell my classes, when goal planning and managing a business, you have to have an accurate picture of reality to effectively plan where you want to go and to give proper guidance.

If you're a Realtor, you're likely only hearing from your lender partners that rates will come down. You're just hearing one side of the story.

Here's the good news as every situation gives us opportunities:

• This is not the same as 2008. Homeowners have equity, very affordable payments from locked-in low rates, and no incentive to sell because they've got few places to go given our low housing supply.
• Home prices do not crash without a glut of inventory. Given the situation for owners and the slower pace of home building since 2008, it's far more likely we'll see transactions slow rather than prices fall off a cliff.
• We have advance notice of these possible outcomes. This is considered the most anticipated recession ever. That means you have time to prepare should it come to fruition. Do you have your 6 months of expenses saved up?
• Houses are still selling and if rates continue to climb, it can create more urgency to take action. Your clients will need your help more than ever. We still sold 1,000 houses/month at the depths of 2008 so the business isn't going to 0.
• The skilled will survive and then thrive. If we do go through a downturn, it will cleanse the market of the amateurs and the pros will remain. On the other side of it, they'll find greater market share and margins. Remember, being a pro isn't about years of experience, but rather operating like a professional and showing up daily.
• It's entirely possible that a recession could bring lower rates. They historically do and that would re-ignite the housing market if it happens.
• This will be felt very differently depending on where you live. Our economy is local and certain areas will be hit harder than others. Data suggests the Southeast will outperform and while the headlines might be bad, our local markets will hold up better than most.
• There is big money on the sidelines waiting for an opportunity to buy. Private equity firms have roughly $380 billion dollars on the sidelines allocated to real estate investments. Real estate is a foundational investment in any portfolio.
• 2024 is an election year. This is a wildcard, but logic would suggest the politicians in charge would rather the market not crash before the election. We may have a year or so before serious trouble.

I went long on this list to offset the potentially depressing news on recessions and rates.

The point is, you make your own reality and like gardening, there will be limited growth without pruning. 🌱🌴

It's time to get rid of the things that aren't adding value to you and your business and double down on your strengths. 

I am very optimistic about the Florida/Jacksonville market based on the data and major trends taking place. You should be too. 😁

Let's make it a great week and use this as fuel to maximize our efforts and guide our clients. 🚀

Whenever you're ready, there are 3 ways I can help you:

1. 🎯 Market Insiders Coaching Membership: Join an exclusive group of Realtors focused on becoming experts in their local market. This membership gives you access to monthly live coaching from yours truly, a member-only community for private updates and discussions, and additional resources to address clients questions and supercharge your business.
   
   
2. 👩‍💻 How to Use Market Stats in Your Business: Accelerate your business growth by learning how to use data. This course will help you more easily understand the market, improve your client presentations, and increase your conversion rate with clients.

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3. 📊 Schedule a live presentation: Want to learn in person? I offer a quarterly market deep dive (MarketPulse 360) and in-person training in the Jacksonville area. Just submit a speaking request and we can get it set up. **I've only got 4 spots remaining for October/November so request before they run out. This presentation is the MarketPulse 360 and gives you a review of the past, present, and future of Jacksonville's real estate market.**