This is the number one topic in

real estate right now.

Why interest rates went up and now why interest rates

are going to be coming down.

If rates go down, you can afford to borrow more money.

That's pretty straightforward.

Making money more valuable, meaning your dollar will go further.

Short term gain for maybe some short term pain.

Why do you think the market's not going to crash?

There's no way to predict exactly what's going

to happen with interest rates.

Trying to forecast that is not really a investment strategy.

Don't wait for them to go back to 3%, but we're going to go celebrate

once they're around the fives and fours.

You're going to save on your monthly payment, but that entire time.

of paying rent while you wait for the rates to go from 7 to

5%, it's going to be a wash.

It.

Alright, welcome

Welcome to Millenia Up, everybody!

Oh, look!

Scene change!

Yeah, we're messing around with different sets here.

So if you're watching this on YouTube, that's what you are seeing.

this time we are going to talk a little bit about interest rates.

This

I can freely talk with my hands without having to

worry about the microphone

right.

I know we get the full gen experience here at this point.

we are going to be talking a little bit about interest rates here.

This is

to be talking entirely about interest rates here.

But not forever gen we're not going to be talking forever about

it But I think we can we can break this down pretty easily for you.

This is the number one topic in real estate, right now.

And ever since they've gone up, that has been the case.

I'm going to actually talk in the beginning here about

the economic perspective.

There's a lot of people out there who don't really understand what inflation is

or how interest rates work or who decides what interest rates are going to do.

And I am not going to

well correction, I think that the definition of inflation

is just A misconception or just a blanketed statement of inflation

is just that everybody raises the cost of things and that's it Yeah,

so I want to give a little bit of a primer because a lot of people

listening to this podcast probably are, not economists, obviously, I want to

give context to the idea of why interest rates went up and now why interest rates

are going to be coming down and then we're going to get a little bit into

what we think is going to happen with, 24 and 25, and I'll be crystal ball time,

it's a very salesman thing to say with, oh yeah, rates are going to

go down, but it's like, yeah, that's really wishful thinking, but you know

me, I just, I said this to you the other day, you can make a decision or say

something that is completely valid, but unless I know why, I'm going to fight

you on it and push back all the live long

to fight you on it and push back all the live long days I have.

We'll have a prediction for where we think rates are going to go.

And again, among buyers and sellers, this is the number one topic.

is what is going on with interest rates?

Because if, unless you have been not engaged in the housing market for the

last few years, you wouldn't know this.

But the interest rates went up the fastest in U.

S.

history, and now they are slated to be down in 2024.

So we'll get into all that.

do you want me to start with just some economic, tidbits and just explain some

prep, some broad strokes here and then you can get into what it means for,

What it means in layman's terms

and layman's terms.

So I'll be the technical and then she becomes the practical.

So guys, just as a general term, inflation, it gets thrown around

a ton in, media circles, economic circles, and even realtors and lenders.

They talk about it cavalierly because it's frankly, we have to understand what it

is in order to explain it to our clients.

But, inflation is essentially just the amount of money in the system.

imagine if you had, a thousand dollars in the entire world.

How valuable those dollars would be if those were required in

order to buy goods and services.

Imagine then you have a hundred trillion dollars.

The value of that money would go way, way down because it would just be everywhere.

So the idea is that inflation is essentially amount of money in the

system and the amount of money it takes to buy just regular goods and services.

So a loaf of bread is 3 and then it becomes 5 and it's just because

the dollar is less valuable.

So during COVID, what we did is essentially print a ton of money and I

think economists are going to look back and, at that time from 2020 to 2023

or 2022, they're going to look back at it with the same scrutiny as like

2008 and even the great depression.

There's a lot of Monday morning quarterbacking, should have

we printed all this money?

We put a lot of stimulus out there.

We saved a lot of companies.

We just gave out a lot of money.

But in order to do that, the government had to print a lot.

So basically what happened between 2020 and 2022 is.

The money supply expanded enormously, and so what that does is, devalues the dollar,

and so that's why your dollar does not go as far at the gas tank, or in the grocery

store, or when you're going to do, regular things, consume goods and services, so

what the Fed Which is the Federal Reserve has done over the last year and a half

has attempted to pull more money out of the system, making money more valuable,

meaning your dollar will go further, and they do that by raising interest rates.

Now I'm not going to get into the technicalities of what.

like interest rates due to like inflation.

Exactly.

But just know that they want to slow down the flow of money in the

economy by raising interest rates.

If it's more expensive to borrow money, whether you're borrowing for a

house, you're doing something with a small business, you're buying a car.

They want to make it, believe it or not.

And kind of like a screwed up way, they want to make it prohibitive

for you to be able to do that because If they don't, then you get

what's called runaway inflation and then the whole system comes apart.

So it's always just like a balancing act.

The Fed has been very communicative in what they've been doing and they've

been trying to cut the amount of money in the market and trying to

slow down the economy because it was like a freight train through COVID,

which nobody really expected to happen, but it happened nonetheless.

You mean you didn't expect to have a global pandemic in your lifetime?

no, but like everyone thought when the pandemic hit,

like everything was going to close.

there were people talking about 100 percent turnover of small

businesses, meaning every small business would fail at some point.

But the only way that didn't happen is because the government came in and just

produced an enormous amount of money.

And kept everything afloat until everyone could get back to business.

This had a huge implication for housing to housing costs went up.

the price of everything went up, contractors were charging through

the nose because of lumber, supply chains were disrupted.

Like.

All these things came together to create a perfect storm of a

pretty high inflationary market.

And again, the Fed just raises rates to keep that under control.

last month, they came out and said they are pretty much done raising rates.

And the entire real estate market had a complete and utter

bonanza festivus celebration.

Interest rates have gone from basically about 2.

75 percent all, they went all the way up to about 8 in a span of about 18 months.

I would say that, we're done.

Which is really difficult

to be able to predict the market.

Yeah.

Because, when we used to be able to look back at any, like, market

reports for certain areas, by the time the data is actually gathered and the

reports are like put out It's not even applicable anymore because now it's

like well race has changed again, which affects the buyers pool And then just

you know creates more of that rate lock effect for sellers and then that creates

inventory issues been difficult to even be able to predict What is trending in?

Any market.

the Fed's been pretty communicative though.

they've been pretty open about Hey, we're going to keep raising rates.

So don't expect us to just pull, but how the rates.

Being raised and then how the mortgage markets and how they price loans meaning

like the interest rate You'd actually pay at the settlement table So that's another

thing that I wanted to make sure people were aware of is that if the Fed can raise

rates and mortgage rates can actually go down They are not like inextricably

linked, but they do follow the same trend.

So the Fed has been saying hey listen We're gonna raise

rates Like just get used to it.

Buckle up.

And the thing that happened in December was they said we're done.

We feel that the adjusted rate of inflation has now fallen to a point

where we can just now keep interest rates where they are to keep that suppressive

effect, but we don't have to keep raising them and being overreactive to them.

some economists would argue that they were too.

Aggressive with rates and that they probably could've raised it to six

and a half and let it ride, but I think the Fed was not taking any

chances.

everything became more expensive.

So what you're saying is they printed so much money, so there's

so much money out in front of us, oh my God, look at all this money.

That's a cactus.

so there's all this money.

So they say, Oh, look, there's all this money that like

people haven't the economy has.

So they're going to just raise the prices just because there's this much money.

Yes, because they want to actually take money out of the system.

So what I'm hearing is more money, more problems.

No money, much more problems.

if you really want to do a deep dive on inflation, go to pretty much any country

in Southern Africa or lots of countries in South America, because what they've done

is decided that the government would just issue as much money as that was needed.

And that's when you get into hyperinflation.

So Venezuela, Zimbabwe, I think it's like a dollar in

Zimbabwe equals like 5 trillion.

It's like ridiculous.

It's like there's no value to any of the money.

So then the entire economy collapses.

they print more money to be able to help during the pandemic,

to be able to help people.

Okay.

So because they print that much more money, so really it's a risk reward

of, Short term gain and short term relief for long term kind of like,

like what a word like punishment.

and that's the balance.

So it's like short term gain for maybe some short term pain.

And it's if you get long term gain for short term pain, obviously

that's a good one, but you,

which is where we're at right now, at least in like the real estate market

is a short term pain for a long term gain.

Yeah.

And we'll get into that in The next few episodes.

Yeah, listen, let's talk about what would happen.

let's talk about what would happen in real estate.

Imagine if prices just kept going up, up, and it was really cheap to borrow money.

let's say the Fed never raise the rates.

What do you think a house that was worth 500, 000 in 2021 would be worth now?

It would be worth it would do just everything we keep go up.

just take Real estate as a sampling of how rates affect the economy, it's pretty easy

to see you raise the cost to borrow money that makes it prohibitive for people to

actually do that transaction and that's really what they're trying to do is that

They say cool the economy, but they're trying to kill off the

economy a little bit it is a balance.

There's a lot of levers.

They watch a lot of data.

then I am actually then going to ask the question that everybody is thinking

or may have thought is, so then why do you think the market's not going to crash?

in terms of housing, the thing that has propped up the economy

despite these rates is the fact that there is, it's just supply and demand.

There's just not enough inventory out there.

And there's a lot of people who wanna buy houses.

the market is, was more expensive in 2023.

It's going to get cheaper in 2024, but it wasn't like, listen, the

rates go to 15%, 16 percent that crashes a whole house economy.

Like that's what happened in the eighties.

would give boomers one less thing to be able to say

that they did that we didn't.

they didn't, I

But I'm not trying to get there.

They can have that one.

Keep it.

They

Hey, listen, they have that one.

Gen X has the great recession.

this is what the millennials, the generation and the Gen Z generation have

to deal with, that is completely normal.

I think I said that on like our first, maybe it was like

in our introduction episode.

I said that, I said, every generation has had a thing.

We just get the ripple effect from all of them.

You

get the emotional damage of every single one.

damage of every single one.

We already

Which is what we said in prior episode that we're going to try not to do.

all all right, layman's terms, very basic.

If rates go down, you can afford to borrow more money.

That's pretty straightforward.

our lovely editor is gonna put up this lovely graph I put together.

If you're listening to this, it's gonna be a lot to follow

along with, but do your best.

I was going through to be able to give at least like a real life situation of how

much of an impact interest rates make.

I want to break this down for you.

So we are talking about test property in real place, Pennsylvania.

so for those who don't know in the MLS, there is a way to

look up a buyer's net sheet.

So these numbers are very, are real numbers that are estimated that factor

in everything that goes into your payments, like homeowners insurance.

So I got it as exact as I could.

That would be.

practical in real life.

at Test Property Road, they purchased it for 425, 000 in November of 2023.

Now, we're gonna guess that it was about a 7 percent interest rate, and

that would make the payment 3, 480.

they got in at 425, 000.

Now, for those people who say, I don't want to buy a house until rates go down.

No problem, because as you're going to see here, the payments

do go down, stay with me here.

somebody waits until rates go down to about 6%.

Now they want to start getting in.

So that same exact house that was purchased for 425, 000 has now appreciated

to 450, 000 because what history shows is that houses always appreciate

Even when rates go down.

So houses are always going to increase in value as

In fact, as rates go down, they should appreciate more.

Yeah, and it's just going to

because it's cheaper to borrow money and the payments go down so

people are willing to spend more.

Yes.

now that same house, because you waited until rates went down to 6%,

you are saving some money, you're saving about 100, because now the

payment is 3, 375 versus 3, 480.

You're going to wait even longer.

You say, nope, I'm not going to get out until the rates are at 5%.

Which, by the way, if you want our expert opinion, I think is an

excellent rate to be able to have.

I think that's a good goal to set for yourself.

what rate?

Five.

Five?

I think that's fine.

To at least, okay, if we're comparing to 7 8%.

Okay.

Four

Four is ideal in my opinion, like real opinion.

zero is ideal.

Then go rent.

Yeah, go rent.

No, it's 100 percent when you rent.

Okay.

So anyway, getting me off

off the, Sorry.

I don't want Jem blowing a gasket over here.

Okay, I don't think

I don't think five is a bad interest

No, it's not.

It's fine.

Okay.

I will retract what I said about the best.

It is not a bad interest rate

have.

have.

Happy.

okay, so now this person, let's call him Jim.

I need a per, I need a real person.

So Jim goes out and he is like, rates are at 5% because Jen said that's a really

good place to go look at houses for.

So now, because the house appreciated for the exact same house, you are

spending $475,000 for that house.

even up to 500, 000 for that house because now you're in a

very competitive bidding war.

So now you're going to have to outbid and work harder and pay more for that house

because now that interest rates are at 5%, so many other people are out there.

So you're paying up to 3, 400, which is only 80 less was

at 7 percent interest rate.

at 425, 000.

by the way, you've waited probably two years or a year and a half and

you've hemorrhaged all that cash into someone else's mortgage by renting.

this is super granular, but it's super important.

there's a lot of different ways to unpack these numbers because as these

rates go down, guys, there's gonna be more people piling into the market.

you and I have probably what on boarded 10 new buyers in the last

month or so with people just Hey, I saw the rates are going down and

we want to get the process started.

And that was not the case.

this time last year, everybody, everyone was worried that the

rates were going to keep going up.

we had a whole episode about Barbara Corcoran, and she was right.

she's been in the business forever, and she said, you guys need, people

need to get in, because it's as the rates go down, it's going to

become a much more attractive thing.

so to finish my point.

And my example, Jim, over here.

that even if somebody were to wait until rates go down to 4%,

000,

000, which is now what you're going to end up buying for that same

exact house, 4 percent interest rate, your payment's going to be 3, but the

person who bought it at 425, 000, at a 7 percent interest rate, is now going to

be able to kick back, put their feet up.

With a nice glass of wine in their hand and be like, Oh, look

at all of them fighting each other to be able to get a house.

And just call up their lender and say, I'd like to refinance, please.

And now their mortgage payment is going to go down to 2, 721.

When the person who was waiting for rates to go down to 4 percent

is going to be spending 3,

listen, if it was like, okay, the rates are going to be four on X

date, like you could maybe put together a model that would work to make it a

sound real estate strategy because you actually are working on information that

you like that's known, but we have no idea when we'll get to five or four.

And if you're just waiting for like a number because of a calculation

you've done in like a Zillow dashboard,

Oh my god, please don't

please don't do that.

that's not a thing.

trying to get you to

They're trying to get you to click, so then you get into Zillow

Loans, and then you get one of their lenders, and then we won't talk about it.

But anyway, at the end of the day, guys, there's no way to predict exactly what's

going to happen with interest rates.

So trying to forecast that is not really a investment strategy.

The other thing that we a lot of lenders have gotten very creative

with very, affordable refinances.

So usually with a refi, you have to actually get new title insurance.

You have to, there's all kinds of fees, but most of the lenders that we work

with now are finding ways to just recast the entire loan once rates go down.

so actually this is something that we brought up in a like prior

episode that we like glossed over because we were going to touch on

it later and I think this is later.

you're getting advice from people who are going to tell you oh just refinance like

it's nothing, like it doesn't cost money.

It does.

But the way that things used to be, yes, you have to then just pay

through another whole process again to be able to refinance the house,

but because times have changed, we are facing new and different issues.

The people who are involved in these, so the banks, the lenders, they

are trying to be able to keep up with the issues and be able to have

programs available to combat those.

So with these high rates and knowing that they are going to go down over

the next three, five years, what he was talking about is our lender,

for example, has program where you can refinance in the next five

years and they will not charge you.

Those refi fees.

That doesn't mean if there's title has certain fees,

yeah, maybe they may still have to do an appraisal or certain things,

but it's much more affordable because they're expecting rates to go down.

they have programs be able to make it so that you can do that with

less pain and with less out of pocket.

so what's the prediction?

what's the Jen, crystal ball got over there for rates in 2024

well, Fed announced they're going to drop them three times this year.

It's okay, cool.

they're 7.

5 percent right now.

We'll drop it to 7.

2%.

They're not

are not 7.

5 percent right now, they're 6.

75.

So

was just throwing a number out there.

Oh, you were throwing

Oh, you were throwing a number out there.

Okay.

Yeah.

They're like, they're about like 6.

825 right now for a good loan.

They actually dipped really low.

They went to almost 6.

125, in December, that's a, they call it the kind of the cat bounce.

That's what they call it in the economic world.

So it always comes back up, everyone takes a breather.

I think by July 4th of July, we'll be in the fives.

That's so nice.

I think if the Fed actually cuts rates, the lending world is going to

just take the ball and run it with it.

if the Fed cuts rates, a signal that inflation is totally under control.

I also know that it's an election year and an election year, everyone likes to

make things more affordable, seem better,

And, that happens on both sides of the aisle.

So I fully

one thing I will take with, election years.

I can deal with having my phone blow up about 85, 000 times a day with people

trying to tell me who to vote for.

So long as I can have everything else be a little more affordable.

Yeah.

no, listen, the credit crisis with Lehman and Bear Stearns

happened November 15th, 2008.

it was a week after Obama was

They're

like, all right, they're like, hold.

Hold

Fire!

No,

I do.

I think we'll be in the fives somewhere.

I think we're going to be in the sixes.

for good.

I don't think we'll go back up into the sevens either.

So you want a bold prediction?

Do you think they'll ever go back to the threes?

I don't.

And if they do, we've got a serious problem because they've got to lower them.

to such a point where they may have to make it so enticing for people to invest.

percent was very much a, a byproduct of the, of COVID.

And.

and Trump.

Trump since the 80s has talked about how interest rates were too high.

Of course, when he was talking about in the 80s, he was definitely right,

which is because they were at 15, 16%.

But Trump came to office with a very staunch stance on

interest rates to begin with.

He was already trying to lower them before COVID even occurred.

And then when COVID happened, like everyone was like, all right, that,

yeah, that definitely makes sense.

And whether Trump is right or not, is

This is not a political

So, everybody wants to talk to me about politics.

I'll talk offline.

But, Trump, definitely though, like the whole economic world knew because everyone

was so scared about people closing their businesses and everything like that, they

lowered those interest rates so low just to make sure that people kept investing.

And the home buyers got that message and really went crazy,

Yeah.

which is what we saw in 2020, 2021 and 22.

So for a healthy market.

Don't wait for them to go back to 3%, but we're going to go celebrate once

they're around the fives and fours.

Yeah, and listen, I think even at six, it, right now, if there's a downward

trajectory, you can always refinance, and again, we have no crystal ball, but, since

when we first started this podcast, we had no guidance from the Fed to say that

these rates were going to go down, and now we do, and not only hey, we're thinking

about it, they've already projected two to three cuts, and I think those are going

to happen in the March and June meeting.

So

And not for nothing even if you're buying at 6%, you're saving

100 from when it was at 7%, and you, it's still a noticeable amount of

money that you'll be saving to still be able to wait and, refinance later

and if you're listening to this, you should go to YouTube and look

at this graph because it's hard to actually state this on the podcast,

but these numbers, we can unpack them multiple ways, but this is a pretty

easy way for people to understand.

It's yeah, you go from seven to 5 percent and you wait, yeah, you're

going to save on your monthly payment, but that entire time.

of paying rent while you wait for the rates to go from 7 to

5%, it's going to be a wash.

it's going to take years for you to make up that cash.

So I hope you, when you see it, you'll understand what we say

or what we're talking about.

put the link to the episode in the show notes if you're

listening on Apple or Spotify too.

And

you know what we can do is we can turn this graph into a link and then in

the show notes, we'll put this link here.

We'll make it available

we'll have our, we'll have our lovely editor Whitney

take care of that for us.

Thanks, Whip.

Thanks, Gwen.

Okay, so hope that helped at least a little bit, give you an

idea of, how interest rates work, how they're going to apply to you,

I think they've gotten their, fill of us on this one.

Okay.

See you.

See you next time.

Bye.

time.