Interest Rate 23 Year Highs Leads to 50% Price Drops

Uncover the puzzle of Fed’s interest rate surge in our latest video. With rates hitting a 23-year peak, we untangle how this shift leads to a stunning 50% of homes needing to have a price reduction. We’ll explain the current interest rates, why the fed raises interest rates, and how that affects home loan interest rates in 2023.

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Article links used in this video:

https://www.nar.realtor/magazine/real-estate-news/mortgage-rates-hover-near-7

https://fred.stlouisfed.org/series/MORTGAGE30US

https://www.redfin.com/news/data-center/

https://www.redfin.com/news/why-mortgage-rates-are-staying-high/

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Full Transcript:

you’re about to hear something that might scare you a little bit to be honest with you interest rates are breaking all-time highs for at least the last 22 years okay that is what you’re going to hear out there but is it scary what’s the fed up to is it going to get worse how is that affecting the housing market let’s look at a headline that I saw here earlier today so realtor.com you know they’ve actually got it right here usually they’re way behind but we’re hovering over seven percent folks for interest rates now a little bit over a year ago you know they were at sixish percent but a year and a half ago we were at around three percent um so you’re buying power is literally fifty percent less than it was a year and a half ago uh so obviously kicked a lot of buyers out of the market but it had kind of an unforeseen thing that came up with not having as many buyers in the market and that is that you know fifty percent of people that are buying a home are also selling a home and there was a stark realization that you know if you wanted to downsize we got a lot of Boomers wanting to downsize right now going from a 2500 square foot home down to a 12 to 1500 square foot home but maybe they’ve got a mortgage that they’re paying 1500 bucks a month on and now when they go to get pre-approved and even if they can buy and sell at the same price across town uh they’re finding out that their new mortgage is going to be more than twice of what they’re paying currently and you know same thing with the move up buyers except that’s a little more painful because to be honest with you if you’re downsizing you just don’t use part of your house and you pay a lower mortgage and it is what it is if you need to move up and you need more space that’s where it’s a little bit painful you could be going from a 1500 to 2 000 a month mortgage to north of thirty five hundred dollars a month for virtually the same price home and so it’s locking a lot of people in um but as realtor.com States you know we have gone on the rise for the last three weeks um in interest rates and the FED just talked earlier this week uh and we were surprised that we were going to be going up even further right a lot of the economic data that’s coming out is good on one hand but it’s not good on another hand and so they spin it whichever way benefits them essentially but what we can see here is that over the last 30 years and this is what is going to be pointed out that today we’re at 7.183 on a 30-year conforming let’s get rid of the jumbo and the FHA uh and so we’re at 7.183 where last November we were seven October we were at 7.159 so we just breached that ceiling that was set in last October and so before that and once these numbers update you know that’s when all the mass media will really catch on and you know start start telling you about it um is that we haven’t seen that number since the year 2000 so maybe yeah December of the year 2000 so it’s been 23 years since we’ve had interest rates this high now I wasn’t paying attention to what was going on the market back in the year 2000 uh so I can’t tell you what things were like um I think we were coming out of the.com Boom a little bit and then we were going to this another Goldilocks period where interest rates were falling continuously over a period of 10 years and then of course you know we know all know what happened in 2008 um and the bubble popped and home prices slashed and burned and that’s what everybody was expecting to happen you know this time but they’ve all been wrong we’ve all been hearing for the last two years that everything’s gonna crumble and I was in that boat a little bit I was surprised what we went through but I think we printed our way out of trouble I think we kicked the can down the road and maybe we have some hardship in the future but as of now with the interest rates going up and the unintended consequences of stabilizing our inventory we’re just kind of at a standstill now what is interesting and this is what’s a little bit crazy is the amount of homes that have sold uh closings are way down closings have been way down for the last year and a half that’s this blue line here so we’re down now it’s 11 nationally but we were down you know 30 to 40 percent back in what is this January of this last year from the prior year it may not make sense to you if you’re not in the industry but this industry is a big industry the real estate industry is a huge industry that many people make a living off of um some people in the industry get paid on commissions or lenders get paid on how much money they lend uh and there’s always transactions happening but there’s things like title companies home inspectors photography companies staging companies all these people get paid based on how many transactions are done and if we’re down 30 percent of transactions that’s a big hit to a lot of people in the industry so we have had a lot of people leave this industry and some that I always love to look at which is my biggest indicator of what’s going on in the market is price drops um whoo so this is interesting so we have surpassed from last year our close price so we’re up in value but this is the number of price drops so we have been on a steady swing up in how many price drops are happening based on this data I would expect housing prices to go down over the next month or two just based on the number of price drops um and this is so fun so you can go look at individual uh areas so let’s look at I know one that’s really fun is Seattle their swings on uh price drops and I think there’s another map down here yeah that shows it even better um so let’s look at just Seattle here and then let’s go look at Price drops

they have so many price drops in Seattle it’s not even funny so this last year in 2022 fifty percent of the homes on the market had a price drop in what is this October of this last year uh and most markets are like this anywhere from 20 to 50 percent of homes are getting price drops in this part of the year uh which we’ll get to because if you’ve been a buyer that’s on the fence the best advice I can give you right now is to get off the fence because you’ve been shopping during a Bad season to be a buyer because that’s when all the other buyers are and now you’re coming into the season where it slows down for sellers so you as a buyer can actually step up and take advantage of it when there’s more price drops happening that’s more opportunities for you as a buyer so take advantage of it this article over on Redfin uh which once again redfin’s got great information out there uh they actually talk about you know why uh mortgage rates are still so high despite all the good news on inflation so here’s what here’s what’s happened is that we went from eight percent inflation down to four percent um now we won’t even get into the Nitty Gritty of how the fed readjusted their basket of goods to account for the last one year of data versus the average of the last two years which highly affects the numbers so basically they changed they move the goal post to you know make the numbers look better for this year but we’re getting into a part where that’s going to catch up with us soon and I think this is going to be my guess um don’t hold me to it I’m wrong fifty percent of the time in this business I don’t make decisions based off of my guesses uh that’s not how we run things um but my guess is that we will actually see inflation go up um because of how they moved the goal posts and how they did their equation but what this States here is that you know everybody’s been reporting decent information we went from eight percent down to four percent now getting down from eight to four is probably four times easier than getting down from four to two which is ultimately their goal uh so they haven’t seen the data suggest that prices are going down um people are still flush with cash somehow uh companies are still reporting really well retail numbers just came out this last week or so and they’re pretty strong now they’re pretty strong in comparison to lowered guidance but they’re strong nonetheless um and so these numbers can step as long as nothing breaks the FED will not stop that is their job despite whatever they say whatever you hear their job is to break something and then they start to fix it uh once we see interest rates start to go down historically 18 months after that happens is actually the bottom of whatever recession or the bottom of the stock market like quantitative easing which is when they start lowering rates the beginning of that isn’t is them trying to save things from going too far so I actually don’t want to see interest rates drop just yet I want it to be another six months or so out before we start seeing price drops because then we might be in a little bit of a more balanced place