Episode 61 - What you need to know about interest rates and the market!

Key Insights on Interest Rates & Market Trends

1. What’s Happening with Interest Rates?

• No one has a crystal ball, but trends suggest a potential drop to 5.75% or even 5.5%
• If rates drop:
  • Increased market activity – More buyers & sellers entering the market
  • Higher inventory levels – Homeowners selling due to financial pressures

2. The Impact of Consumer Debt

• Many people are carrying significant credit card debt (25–35% interest)
• Refinance activity is rising as homeowners look to consolidate debt
• Even moving from a 3% mortgage to 6.75% can still save homeowners $600–$800/month

3. Understanding Mortgage-Backed Securities (MBS) & Interest Rates

• Common misconception: Fed rate cuts do not directly lower mortgage rates
• True factor: Mortgage rates are tied to mortgage-backed securities (MBS)
• Key metric to watch: 10-year Treasury bond yield – It moves mortgage rates

4. Government Spending & Inflation’s Role

• Increased government debt = higher bond yields = higher mortgage rates
• Government reports on employment, inflation (CPI), and consumer data are often misleading
• Example: Job reports were recently adjusted down by 818,000 jobs, revealing the economy isn’t as strong as presented

5. The Role of Housing in Inflation Data

• Housing accounts for 46% of the Consumer Price Index (CPI)
• Inflation data is skewed due to outdated or incorrect rent estimates (Owner’s Equivalent Rent - OER)
• Actual inflation could be lower than reported, allowing for faster rate cuts

6. The "Mark to Market" Gold Adjustment & Its Impact

• Gold is at an all-time high (~$3,000/oz) – It signals inflation concerns
• The U.S. government values its gold reserves at $42/oz (from 1970s) instead of the current market rate
• If the Treasury adjusts gold reserves to market value, it could add nearly $1 trillion to U.S. finances
  • Less need to sell bonds = Lower mortgage rates
  • Potential drop to 5.25% or lower

7. What Real Estate Agents Should Do Now

• Monitor Treasury announcements about “Mark to Market” for gold
• Stay informed about CPI & Treasury yields
• Prepare for increased buyer activity if rates drop
• Reach out to past clients – Let them know how potential rate cuts could impact their decisions

Closing Thoughts

• Big takeaway: Watch for government spending cuts & Mark to Market discussions
• If rates drop, expect a hot market – be ready!
• Final reminder: If you list, you last!
• See you next week!

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