The difference between a 3% rate and a 7% rate is hundreds of dollars.

The real estate industry has been kind of holding out, waiting to

see whether the Federal Reserve is going to be lowering rates.

And that is going to create more demand in the marketplace.

We should title this episode the "Seth's Nerd Brain"

episode.

Seth's Nerdbrain.

You lock yourself into your house because of your rate.

That has kept a lot of people from selling their home.

As rates go down, these two things are going to collide.

There is a chance that this whole market could get blown open again.

We've now in the real estate industry been like through this massive

roller coaster And we are hopeful that things are on its way down.

I Welcome back to Millennia Up.

Welcome back.

uh, you mentioned a quote the other day.

Why don't you tell us what it was?

for every 1 percent rates drop, 5 million buyers re enter the market.

I personally love.

I think she is a wonderful human being.

I would love to see her.

Ooh, here's a new 2024 goal.

Hey, Barbara Corcoran, come on to our podcast.

We would love to have you.

Yeah,

We were not able to find the, like, the statistical data

for it, but the principle's right.

that the lower the interest rates are, The, easier it is for people find

the will to, transact in real estate.

It's also just common sense, to be honest.

Well, it just makes cheaper.

The lower the interest rates, the cheaper real estate is, and

it's basically just discount.

So, you know, a lot of people talk about, you know, COVID and how, how

people were rushing to get homes.

There were a lot of people doing that because of COVID, but there were a lot

of people, you know, and the lifestyle and work from home and they needed

a new home or they needed to move.

But a lot of it had to do with the fact that interest

rates were really, really low.

They were at the 3 percent and

I even have a client who locked in 1.

625 percent

Okay, that one I haven't heard

on, on a 15 year on a huge, like huge house.

And, it was like a jumbo loan.

no matter what happens in the market, don't expect them to resell.

Yeah.

That's not going to come up, but I want like a standard 30 year fixed.

conventional loan, which is what you would get, if you buy

a house, in the United States.

you were probably at about 2.

75 to 3.

25 there for about two and a half years.

and then it made people think it was normal, you know, 'cause like

us millennials, that was when we were getting to the point of, I had already

had my house by then, but still it was in, within that timeframe of where.

Our average millennials starts to like buy the first house and whatnot, so they're

kinda like, we're going into the home buying life with rates at like two, 3%.

People thinking it's normal.

It's like, oh.

then it's all like a mindset thing of, you know, the psychology of, you

see rates at 3%, you see them go up to 5% and you're like, oh no, not that.

And then you see them go up to 7% and then they're really like, oh God, really?

No, not that.

Yeah.

But as soon as you go from 7 back down to 5, the psychology behind it is

Yeah, the relativity, the relativity

shopping on Black Friday and seeing like, Oh my god, it's on sale!

It's literally like, just like marked up and the price is down.

literally the same price.

the opposite has now taken place where the rates have gone up.

Relativity is terrible.

prices of homes have gone up in general, just because time has gone

March forward, but also interest

gone up because, they are an asset and because they, they do, they

And it's, and there's, and there's demand for them.

Like I always say, like if we're selling yachts, like that's a totally

different thing, but people need houses.

So there's always going to be value for them.

It's just a matter of.

timing and the interest rates in the market timing of year, which is

what I mean, but now what happened in 2022 the rate started creeping

up and they went up faster than any other time in United States history.

So.

They went down to these historic lows in COVID because they wanted to

make it very cheap to borrow money.

They wanted it to be very cheap to keep the economic engine going because

we had been, I mean, COVID was an unprecedented event of shutdown.

They gave away a ton of money.

You know, there's a whole political side to all this, whether they should

have done it, shouldn't have done it.

There's a lot of Monday morning quarterbacking about like, Hey,

should have they done this?

Should they done that?

I honestly think that what they did in the beginning was good.

They just did it for too long.

They kept the rates way too low for way too long, which created a huge

rush into real estate, which then created really a supply and demand,

you basically have a bunch of people hunkering in their homes and then you

make it really attractive to buy houses.

Of course, it's going to create a mismatch.

There's not going to be enough houses.

Prices go up.

Then we're running into problems with the amount of money flowing around, which

is just a fancy way of saying inflation,

and

had to raise rates.

And now there has been an announcement that rates are capped and now they

are going to be coming back down.

So we are on the downward slope, seemingly, unless something else happens

in the market of this roller coaster.

And that's what Barbara is talking

would never

That would never happen.

but Barbara is absolutely right.

If the right now is rates go down.

More people are going to enter the market in 2022 and 2023.

We saw a lot of people pull back and not want to buy anything because either a

they like really just couldn't afford it

They saw what they could have gotten before, and

well, they they could have.

But there's like the interest rates going up definitely caused people to

just flat out not be able to afford the house that they were looking at before.

And then the other one was it became too hard to afford it.

the ability to borrow money became more expensive.

so a 2, 000 a month payment is now like a 3, 400 payment just because of the

interest rate and like 1, 400 is that's a that's a hefty sum for a lot of people.

I mean, I have people who are looking at in this market, they're looking at 10,

000, 11, 000 mortgage payments and they're like, yeah, we can, we can swing it.

But what?

do they do for a living?

he works in securities and, and she's a HR director for some

pharmaceutical company somewhere.

So, but no, but I also work with like people who are, you know, 97%,

you know, conventional and FHA.

And yeah, I mean, the, the difference between a 3 rate and

a 7 rate is hundreds of dollars.

And for them, that's a big, jump.

So the real estate industry has been kind of holding out, waiting to see.

Whether the The Federal Reserve is going to be lowering rates, it

appears that they are topped out and they are going to be lowering rates.

And that is going to create more demand in the marketplace.

have I talked to you about the rate lock effect?

we should title this episode the Seth's Nerd Brain

episode.

Seth's Nerdbrain.

no, the rate log effect.

other thing that happened when you lower rates to 3%, all the existing home

buyers before 2020, before COVID, all these people had their, these mortgages.

And so what they did when they saw rates were 3%, they did

what's called a refinance.

They refinanced so they took their four or five or six percent rate that they got

anywhere between 2013 and 2019 and they refinanced it and got that lower rate.

So now what you have is, I think it's like over 65 percent of

Americans have a mortgage of three and a half percent or less.

So in short, to cover rate lock effect, it's pretty much exactly what

it sounds like, is you lock yourself into your house because of your rate.

Your rate.

And so, so the idea is, yeah, psychologically and, and financially,

I mean, if you have a 3% rate in the house that you're living in and you

want to move, but then you have to go, spend, money at a 7% rate, just

doesn't make sense for someone to move.

And so that has kept a lot of people from selling their home.

And there's been a lot of buyers waiting for interest rates to

come down and Corcoran is talking about as rates go down, these

two things are going to collide.

These rates are going to become more attractive for the three

percenter holders to sell

it's going to be less to like walk away from and like give

but also as money gets cheaper, i.

e., you know, interest rates coming down.

There is a chance that this whole market could get blown open again,

and that's why she was saying that right now it's not a bad time to buy,

because if you wait for rates to come down, you're gonna be competing against

the law.

Well, we talked about that A couple weeks ago too.

so I was looking up a bunch of, I, again, me going down a rabbit hole as I'm doing

my prep work for these episodes, went down a big Barbara Corcoran rabbit hole again.

Love you.

Come on.

like I

people have asked her, her take on.

Is right now a good time to buy and there's some people saying that she's

crazy for saying yes, this is a great time to buy But she is right because

it depends on what you want and what's important to you Like do you not want

competition because I've heard people say like but I don't want to do a bidding

wars Which that's a totally different topic entirely but if that's the case

then get out there right now, but something I want to kind of get back to

what you said is You know sellers haven't sold because of the rate lock effect.

what the Fed is doing, is that going to help support the inventory

problem that we've been having?

okay, imagine the federal lowers the rate and, and they go to 3 percent again.

The rate log effect would be completely irrelevant because no, I'm not saying

that's going to happen, but to give it an extreme example, if somebody is

sitting on a 3 percent rate and the rates go to 3%, then all of a sudden

that whole idea of like, I don't want to give up my rate, that all goes away.

But the theory is, is that if it goes from 7 to 5, then it's like, okay, well,

if I've got a 3 percent rate and I'm, yeah, 5 percent rate, I know I'm not, I'm

going to give up this great rate, but.

And this is stuff we always talk about.

What are the other pain points?

Like, does the person need more space?

are they getting divorced?

want to change school districts or whatever?

Those considerations then become kind of more in play.

But right now, the difference between three and a 7 percent rate, like

that's just too much for most people.

So as those rates come down, it's going to become more appetizing for people to sell.

And that's going to be great for the economy and great for buyers because

they are going to have more options.

And that's going to put even more buyers out into the market too, though.

So think that the people, so like, obviously there have still

been buyers, since this has happened, since the rates went up.

just a lot of them, probably I would say, I don't have a statistic for it,

but, Common sense would tell me that the majority of them are likely first time

homebuyers or downsizers, whatever it may be, where you're paying cash, etc.

that took up the buyer's share, but now if we have sellers selling, that's just

adding even more buyers into the pool.

Well, it is, but it's also every, every listing that

comes up, pulls a bar out.

as sellers come on the market, it will start satisfying that demand and getting

people off the buyers out of the market.

And it's really just a, very rarely is the market really ever balanced.

That's usually you're in a buyer's market or a seller's market.

We were really in a pretty balanced market in like 2017, 18, beginning of

19, 19, before COVID everything started.

Kind of getting tilted the wrong way and a lot of that had to do

with a lot of millennial homebuyers coming online meaning they started

to become of age where they had the financial ability to buy

And then COVID just came in and just fucked shit up.

yeah, and just just messed everything up.

we've now in the real estate industry been like through this massive roller

coaster And we are hopeful that things are on its way down I know this was like

kind of super technical what we talked about I try to distill it down into

terms that most people can understand if you own a home you definitely Get

what we're talking about because you were definitely paying attention to

rates You always pay attention to your rate when you buy a house, but if you

don't own a home And this is a little technical you have any questions.

We're always around to Answer them, I'm excited.

I think it's going to be ultimately good for the economy

for these rates to come down

I mean they're starting to come down slavishly, something that people aren't

this point of recording they've come from eight to seven and I believe

that has been over the last about 40 days

we're not saying that's a bad time to buy, it might not be the best time to

sell, depending on your situation, but for somebody who's looking to buy, even

at 7%, like, you're still winning out, because you can still refinance when those

rates go

down.

When those rates all, go down.

All right.

So we hope it was beneficial hope that sets nerd brain, taught you something.

I was here to look pretty, and show off my favorite gift that I've ever been given.

And it's really funny.

guys have any questions about, any of this?

you can find us at, millennia podcast on Instagram.

we are on there more than we probably should be.

We're a little distractible,

Alright, see ya, bye!