In my 20 year real estate career there have been times of uncertainty and concern. The most challenging time was the financial crisis and Great Recession of 2008-2009 that opened the foreclosure floodgates. It was very difficult working with people who were losing their homes, and often there was a lot more going on behind the scenes. People were losing their jobs, and the financial stress was decimating marriages and ripping families apart. The social collateral damage was devastating. It took years before experienced the next major market upheaval.
The COVID market was not what I expected back in March of 2020 when the first lockdown trapped us in our homes and threatened our businesses and livelihoods. We were in treacherous territory not seen since the Spanish Flu a hundred years earlier, but it soon became apparent there would be a big winner during the tragic time: the real estate industry. Interest rates dropped to historic lows and economic stimulus kept money in consumer’s pockets and food on their tables. Nearly all the homes that came on the market attracted multiple offers and drove up prices to dizzying heights. It was a house buying frenzy!
While everyone was busy buying houses the global supply chains clogged up, which drove up prices of every day goods. There were two rounds of economic stimulus, first by Trump then Biden, which contributed to the inflation debacle. When money gets cheaper, it doesn’t go as far and everything gets more expensive. During the worst of it we had over 9% inflation.
Today our inflation is largely under control and the latest number for October 2024 was .2%. From September 2023 - September 2024 consumer prices were up 2.4% which is perfectly acceptable. Unemployment is 4.1% which it very good. Despite the president elect’s rhetoric on the campaign trail, he is inheriting a solid economy as evidenced by these numbers and an all-time high stock market. The problem for most Americans is that prices got too high and we blamed it on Biden. It doesn’t matter what the national economic statistics say, people are effected by the elevated prices that they now pay every day, and the outgoing president was held accountable.
Our next president is suggesting draconian policies that will have seismic repercussions in our economy and society. What’s going to happen when you deport millions of workers? Labor becomes more scares and more expensive. Contrary to the incoming president’s assertions, tariffs are not paid by foreigners, they are passed on to US consumers by importers who pay for goods. Economists are forecasting higher inflation and deficits under the next president due to these policies he is advocating.
My friend Paul Olbrantz is a mortgage broker who puts out informative videos regularly, and he is fond of saying, “Inflation is the kryptonite of mortgage interest rates.” When inflation goes up, so do mortgage rates. If we see inflation increasing we can say goodbye to the fed lowering the short term lending rates. The four Fed rate cuts in 2025 which were anticipated are now uncertain. On November 6th mortgage interest rates hit 6.93%, up from 5.89% on September 17th. We are going in the wrong direction.
What happens when interest rates stay in the high 6’s or go even higher? The housing market slows down. There are less home sales. Home sales are a huge driver in our economy, and our economy will suffer if sales go down. The housing market accounts for 17.6% of our economy. If that number comes down a lot of businesses will suffer. Earlier this year I was very optimistic about the housing market this coming spring. I’m still hoping for the best, but I’m starting to feel concerned.