The Expert Podcast

• The new construction home market has been the main driver for real estate sales over the last year and a half, as the resale home inventory has been struggling. Many homeowners are reluctant to sell their homes due to low mortgage rates (around 3-4%).
• However, new home sales have recently fallen by 8.7% in August, showing signs that even new homes are being affected by higher interest rates.

• Interest rates have climbed to nearly 8%, with predictions that they may reach 10% within the next 1.5 to 2 years.
• Historically, mortgage rates in the 7-8% range were common, but rates are expected to rise due to the Federal Reserve's announcement that the current rate level (5.5-6%) is considered the "natural rate."
• As inflation continues to creep up, the Federal Reserve will likely raise its rate above this natural level, forcing mortgage companies to increase their rates further to maintain profitability.

• If the Federal Reserve rate is around 6%, mortgage companies may need to add 3.5-4% to make a profit, pushing mortgage rates toward 10%.
• In the 1980s, mortgage rates hit double digits (12-18%) during a period of high inflation, similar to today’s economic climate.

• With rising mortgage rates, some people may opt to invest in safer alternatives like CDs (Certificates of Deposit), which are currently offering rates around 6%. This makes the higher risk of a mortgage less appealing.

• Surprisingly, in the second quarter of 2023, the number of refinances increased, even though mortgage rates were high (6.5-7%).
• Many homeowners refinanced from lower rates to higher ones in order to cash out, a troubling sign that people may be running out of money and are tapping into their home equity.

• The housing market faces further challenges as mortgage rates rise and people continue to face financial pressure. Fewer people may be willing to sell their homes, and new home buyers may become less prevalent due to these economic shifts.