New study out from the Mortgage Bankers Association shows that ARM demand has reached a 14-year high.
And now what's an ARM?
An ARM is an adjustable rate mortgage.
A lot of you that have entered the business over the last 10 years may have never used an ARM.
They became almost invisible for many, many years. Why? Because we've had the lowest interest rates in history. No one would bother doing an ARM. But over the last quarter, just to here in 2022 ARMs have gone up to a 14-year high.
So an ARM is an adjustable rate mortgage. Generally, it's set interest rate for the first 3, 5, 7 years. And then it resets based on the current rates of that time. There's a cap on it. Every loan's a little bit different, but here's some examples of what that looks like:
Right now, as I'm talking to you today...
The current interest rates are about 5.5% while the ARM rate is about 4.5%. So people are getting about a 1% discount for going into an ARM...
The Fed just raised interest rates, no secret there. It went up by a quarter percent. And it's likely that we're gonna see interest rates go much higher than they are today.
And so there's concern in the marketplace, like what are these interest rates gonna mean for the real estate market? There's a lot of differences between where we're at today in the market and where we've been in the past. For instance, right now we have the lowest supply of homes ever recorded. So that's gonna indicate that demand is probably gonna stay pretty strong and healthy because we need more supply to fill the demand.
But there could be a situation where you get to what's called buyer resistance. And that's where buyers say, "I can't afford to pay anymore for a mortgage payment."
We're not there yet. We still have high demand. And just by comparison, yes, rates are higher than they were a year ago certainly. But if we go back decade by decade,...
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...
There's a "four alarm fire" happening in the real estate industry today:
What is it?
Interest rates are rising extremely rapidly. Now we knew coming into 2022 rates were gonna rise. The anticipation was from Mortgage Bankers Association, NAR, Fannie Mae and Freddie Mac, etc. The consensus was 3.7% by the end of 2022.
But what has happened?
First week in January, rates went to 3.12%. Second week in January, rates went to 3.45%.
Wow — that's almost a vertical rise!
So what's the messaging here?
The messaging for our buyers and sellers is get off the fence and get into the market.
Now, why are rates rising so quickly?
Well, we know that the Fed had told us already that they were gonna raise rates three times in 2022 to fight inflation because inflation's at a 50-year high and 7% was the latest number.
So their #1 goal was to fight inflation.
They also announced they were gonna stop buying mortgage-backed securities...
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