The Good (And Bad) News About Interest Rates

Hey guys, quick market update for you:

We know that the CPI—the consumer price index—has risen dramatically. And right now it's running about 7% to 7.5%, depending on which economist you talk to.

That means that inflation's skyrocketing. The cost of goods and services is skyrocketing. Wages are skyrocketing. And so is the cost of getting a new loan or a new mortgage on a home.

Now, why are loans affected? They are affected because the federal government looks at this as a lever that they can push on the economy to slow the economy down and put the brakes on the growth in the country.

So since November of last year, through roughly today, we've seen a 300-point basis jump in what interest rates are costing Americans.

Now to put this in perspective because what does 300 basis points even mean?

It means that if you were gonna try to get November's interest rate today, it would cost three points. Three points, every a hundred basis points equaling one point. Each point is what's charged against your overall loan value.

So let's assume you had a 300,000 loan:

You're gonna buy that down with three points if a lender would allow you to do that, it would cost you $9,000 to get that interest rate brought back to November's rates.

Now, first of all, most buyers don't have that kind of money laying around. So they're probably just gonna accept the current rate instead, which has gone up pretty significantly, right? So up almost a full percentage point. That is actually gonna cost them way more than the $9,000 over the life of their loan. So that's gonna be super expensive for most buyers.

That's the bad news.

Here's the good news:

Relatively speaking, interest rates are still super low compared to decades past. They're just not at the absolute low. Last January, we hit the absolute low of interest rates in our country — hitting 2.6ish percent. Now they're up about 3.5%, probably gonna rise from there. We anticipate rates going all the way to four, maybe four and a half percent by the end of this year.

Because of that, waiting is not the right play.

Home prices are still going up.

And if you wait, you're gonna not only pay more on home prices, you're actually gonna also pay more in interest rates. You're gonna have a double whammy there.

Take this sting out, get in the market now. Don't wait any longer. That's what we need to be telling buyers and sellers.

The reason why we need to be telling sellers is if every 1% percent interest rate that goes up in the marketplace, that takes 10% of the buyer pool out of the market.

That's number one: There are less buyers.

Secondly, the buyers that are in the marketplace, their affordability will be affected. In other words, they can only spend so much. They can only have so much payment. And when they have to pay a higher interest, they can afford to pay less for your home.

So pricing pressure comes into the market.

We have to be explaining these things to buyers and sellers. We gotta get them off the fence. We gotta get them motivated to enter the marketplace. Hopefully, by just showing them some black and white numbers, and working with your lender in your local market, you can help them to do that.

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