And welcome back the FED is actually Scheduled potentially to start cutting Interest rates in about 3 weeks which is Our next meeting scheduled on September 18th so in today's video we're going to Talk about how this could impact our Housing market and also mortgage rates As well and I'm joined by Jim BL the man The myth the legend welcome back Jim Thanks Jason good to see you um I saw You I think last week somewhere was it In Michigan we were for three nights Yeah I think on you in Detroit yeah yeah Yeah we were in Detroit for a really Cool industry event some great leaders And uh it was awesome to meet leaders of One of the largest mortgage companies in The country and really cool to see Detroit revitalized by a lot of um good Investment made by some key people so Absolutely I mean if you haven't been to Detroit lately I mean I've never been to Detroit the first time last week Absolutely beautiful city I'm amazingly Clean I could not believe it um but Today's video is about what the FED um Potentially start cutting interest rates Uh in about 3 weeks um from the time We're making this video and I really Want to make this video to kind of talk About how that could impact our housing Market and also um talk about the Correlation between the federal funds Rate which is the rate the FED um
Controls how that impacts mortgage rates So Jim's been a licensed loan officer For about uh 22 years so I thought it'd Be great to have you on the channel kind Of talk about that thank you so much I'm Really glad I'm here and what's really Important to think about with interest Rates is there's no direct correlation Between what the FED does and what Long-term mortgage rates do so one of The big things we hear a lot is Sometimes people say oh rates are Dropping by a quarter that means my Interest rates can to drop by a quarter Percent. it could be more or less it's Kind of crazy it's like that I get that Call all the time and it's just been Interesting to in my 22-year career Sometimes people don't realize it's the Sentiment of what the markets believe is Going to happen is where interest rates End up absolutely so the this is a very Important thing to kind of take away if You don't take anything away from this Video this is the most important one the Rates were we have today you know daily Rates you know in the mid sixs Approximately those um are already baked Into the fact that most people in the Street is forecasting and predicting and Expecting that the FED will start Cutting interest rates in about three Weeks so don't uh think that once the FED starts cutting rates that will
Decrease rates that day uh that's simply Not true because um the street is Already forecast that the fed's going to Decrease in rates and therefore uh rates Have already gone down based on that Expectation um anything you want to add Regarding that Jim yeah basically it's Sentiment it's the markets financial Markets are always forecasting what the Fed's going to do and the likelihood of Them doing something and that confidence Factor is what really dictates if Something's going to be going higher or Lower so for example when rates go lower That means that the markets like Interest rate Cuts because it means that The cost to borrow or the cost to invest Is lower so that's a good thing that Makes the market feel healthier if rates Go higher it means that there's Inflation or that they need to slow down The economy when you slow down the Economy that means that the stock market Normally Peters out so you have a Interesting time right now where you Have Wall Street cheering the rates Being lowered with the FED wanting to Make sure that they do it appropriately Not to create more inflation which could Then create a bigger issue down the road Yeah right yeah the Fed like basically This dual mandate maximum employment and You know you minimize price increases in Other words kind of like a level you
Know 2% range for inflation obviously For past what couple years now maybe a Few years we've had elevated inflation But it's been winding down and also We're seeing kind of our labor market Slowing down as well so they have this Kind of balancing actp between you know Making sure we have maximum employment And also kind of um inflation in check As well exactly right and again what's Great what is directly benefited from an Interest rate reduction those things are Student loans car loans short-term loans Home equity lines of credit anything That has a variability on a shortterm Index credit those are all benefited Directly if rates go down a quarter your Line of credit for your home equity loan Should also go down a quarter um some Banks put in floors which means they put In a bottom that the rate can get to so You want to check your note to make sure That that rate will adjust below current Rates um some credit cards should be Going lower if the cost for a bank or an Institution to borrow money goes down You should see some relief also so it Should help everyone out on a short-term Month-to-month cash flow basis right and That's like basically happens just like This for those uh uh accounts that Jim Mentions but not for uh mortgage rates Entirely different so having said that You know the FED controls a federal
Fense rate which is the overnight rate That Banks charge each other to lend Each other money based on reserve Requirements but um what exactly what U What should you looking at in order to Kind of gauge the direction of of Mortgage rates anything that you know Cons yeah there's a few things that you Want to look at uh labor labor labor Numbers make sure that lab labor jobs Look good um consumer confidence is Important in those elements and remember That the Fed operates separately than The bond market the bond market is Dictated off of what I would say a Flight to Quality so if there are Unknowns uncertainties in financial Markets or other countries or parts of The world people choose to have a flight To Quality quality being something that Has a secured asset behind it not a Piece of paper not a Bitcoin none of Those things but a physical asset right That's the best secured investment you Can make is a secured asset so you see People flight to Quality they go from Being in the the stock markets to Something that's secured as people fight For those Securities it's a reverse Mindset the bond price um or I should Say loan rate goes lower because if you And I are competing for a million dollar Note which would be nice one day I may Take
0.1% less than you to get that so it's a It's a reverse auction basically so the Bond market Works reverse so again if There's a lot of people wanting Mortgages and there's only a certain Amount of mortgages people are going to Take a little bit less to secure that Long-term return that's secured on a Mortgage note yeah the opposite is true When there's two much or a flooding of Mortgage notes in the marketplace if There's extra notes outstanding I want More money or more return so rates will Go higher until the investors satisfi With the level of return And the demand is equal to the supply Yeah you have to look at it that way if That makes sense yeah absolutely I think That basically inverse relationship Right when the prices go up the yield Goes down uh just like anything if There's like a high demand for cars for Example uh and there's not enough Supply The price goes up and of course well Maybe it's a bad analogy because we're Talking about yields but um the demand For anything uh prices go up and then The yield goes down so in an environment In which we have you know the bond Prices going up then yields go down and Therefore rates has go down as well so Any um forecast regarding what do you Think is going to happen regarding U Mortgage rates for Less a year or is
That something you kind of don't really Focus on because it's kind of a little Out of control uh great question I Actually I look in like six-month Increments um I've never really Explained this i' look at kind of a half Half yearly cycle to see where the Trend's going uh I do that because of Two reasons number one I want people to Make good decisions today for the long Run knowing that if something down the Road was to happen it's a b it's a a Blessing it's a bonus I don't want People today thinking tomorrow they can Refinance I want someone to be Comfortable with their long-term plan we Also look at that six-month mark because At that point in time investors for the Most part will let us use the current Value of the property to look at optimal Refinance strategies so you have to make Normally six payments or have your loan Seasons for about 7 months so that way If you've done improvements on your Property or if the value continues to go Higher um or unfortunately if it goes Lower those are things that play a role In those decisions on your loan to value So I like to look at that six-month Mark As kind of my window and then back to Our break even analysis that we've Talked about before on your channel I Like to make sure that that break even Is less than like 18 months to two years
For refinancing you're saying for Refinancing exactly or even paying Points because paying points on the Purchase right I want it to be less than A two-year period of time because you're Most likely I'm Almost 100% confident in This not going to keep that mortgage for 30 years something's going to happen You're going to move you're going to Have something happen in a hopefully Positive way but also could happen in a Negative way either way that loan is Most likely not going to make it to Maturity so looking that far out is just Too far if the break even was like 25 Years doesn't make sense so we want to Look at that shorter term Horizon six Months is my forecast for rates I do Believe rates are going to go lower I Think we'll be in the low mids mid fives To high fives by the end of the year uh During election Years also the Government doesn't want to have Influence the Federal Reserve Is Not Elected by the outgoing president so we Don't want to have any influence there So they just try to stabilize the market And make things kind of in a status quo Place you're not going to see anything Dramatic happen um in the markets Because that would skew the voting to One side or the other depending on the Positive or negative Impressions that Current economic um situation led to
Interesting yeah yeah yeah yeah I I Don't think there's G be wild Fluctuations unless like unemployment Spikes for example or if inflation Starts winding up again which I don't Foresee that happening but uh yeah There's so many things that impact our Market uh that makes it very challenging To kind of predict what's going to Happen but yeah I agree that overall if We kind of in this down term regarding Inflation we'll probably see uh rates Decrease further uh giving people more Opportunities to buy houses um so that's All good things yeah absolutely perfect And now you're also seeing um what's Really important to understand as a Buyer seller 21 buy Downs are still very Very valuable to look at what a seller 21 buy down means is you're buying the Rate down temporarily 2% below your note Rate the first year and 1% the second Year knowing that even if you refinance You still get that difference in savings As a principal reduction so seller 21 Buy Downs or buy Downs are still a very Valuable thing because you do get the Benefit no matter what don't be worry of Getting big credit Those credits are always good to be Using for other things we can use Credits for a property tax and insurance Impound account we can use them for Paying buyer commissions there's all
Kinds of ways to structure those things Yeah the two one buy down too the seller Has to pay for that fee correct to yes There are ways to structure that we have A myriad of different ways to do that it Can be buyer or seller finance correct Yeah and also something it's really Important to know about two1 buy Downs As well compared to to like 2008 for Example is that the lender um for Example let's say revest loans uh they Uh qualify you based on your payment on Year two so when the rate moves year Three yeah year three yeah year three Three sorry yeah exactly so your you Know let's say 6% is the current rate Your first year it's going to be at what Uh uh 4% next year at 5% year three at 6% and you're qualifying you based on The 6% rate not the 4% rate much Different compared to The qualification process back in 08 Let's just say that absolutely yep so we Got some exciting things ahead the Market feels good the buyers are coming Back there's more confidence there's an Anchoring effect like we've talked about Before on your channel also where people Are not willing to move because the Interest rate differential is so extreme Right I own a house down here at 3% Rates are at 7% I'm less likely to move Because I'm financially going to be Worse off in the long run as rates get
Closer to that equilibrium you'll see More people more likely to move because They know that their payment will be Similar to their previous payment yeah They may be moving up or down but They're still having a similar cost to Interest and once that happens I think You'll see a lot more fluidity in the Marketplace or um more velocity with People wanting to sell yeah and we have A lack of that happening really in California I just actually posted a Video yesterday about this uh new Listings are down by like about 30% from 2019 so even though they up by 20% from A year ago we're still down way way down Compared to U pre-co levels that's Because this anchoring effect people Have rates just like you mentioned way Below current rates but if rates were to Decrease to get people off the fence you Might see more options as well which of Course potentially could increase Inventory as well which would be a good Thing for home buyers out there as well Yeah and we have a really cool tool also To reach out to Jason and I um our Blended rate tool are also um the break Even tool again get knowledge deep in Front of your knowledge we have probably Five Mutual clients together that are Ready geared up queued up they've given Us all the documentation they're ready To go once that rate gets to the level
That they're at I can get I can lock Them in and then we're ready to go so We're not having to stall and figure out Things later we're prepared so get Prepared early it costs nothing to be Prepared to refinance it costs nothing To be ready to go two weeks ago we saw Rates drop about 38 in one day that was Crazy three days later they were back up To where they were previously I was able To lock seven people that day seven People are very happy with me some People that didn't have their stuff Prepared we couldn't get a lock down Because they hadn't given me their Application so be prepared and there's No cost to be prepared a lot of times we Don't have to pull a hard credit pull Either to be prepared so no that's That's a really good point uh I mean There was that one day which I remember Was a Friday probably like what three Weeks ago and that was like the time to Do it yeah Friday to Monday Monday Morning is when it was the low yeah Right exactly that was like almost a one And a half um a year low and if you're Not in the queue you don't have all your Documents with your lender then you Can't move that quick and same goes on The sales side as well you find a home You absolutely love it's like Sunday and You find out they're looking at offers Sunday night and you you haven't even
Gotten pre-qualified I mean people you Know do your homework get in a position To move if you guys are even thinking About doing because just like you Mentioned it doesn't cost you any money So you and I last night were working Till 10:30 sending out uh scenarios to Two clients so it you know your partners Are your professional real estate Professional and your lending partner They should be working hand inand most Of them won't have relationships like Jason and I from you know 20 30 40 years But just know you have to be in sync Because you want to strike when the Opportunities there and if rids drop and There's a house in the market you like You wait a couple days more buyers are Going to want to write an offer on it Cuz they finally realize that the cost Just went down from them buy so you Really got to be on top of your game be In front of these things and make your Own decisions the FED has their Decisions you have your own personal Decisions on your life and what's Important to you we'd love to be Resourced for you there and uh yeah That's all I gota really say awesome Thanks Jimmy appreciate you so much uh Friends good friends for gosh 35 years I Think it is it's ABS crazy it's so fun To be working together I just can't get Over it so awesome man I appreciate
Buddy uh and everyone watching today's Video we appreciate you as well uh Please like And subscribe and we'll see You the next video have an amazing day [Music] [Music]
