Seattle Housing Market: Navigating Interest Rate Trends | Expert Real Estate Insights

Hey everyone, Aaron Morrow here, your go-to realtor expert in the Greater Seattle area. I'm thrilled to bring you key insights from the latest episode of our podcast, "Living In The Greater Seattle, WA Area with Aaron Morrow."

In this insightful episode, I'm joined by Bryan Laflamme, an outstanding lender I partner with through Movement Mortgage. We dive deep into the Seattle housing market's current state, with a specific focus on the evolving interest rates and their impact on the market dynamics in King, Pierce, and Snohomish counties.

Are you ready to challenge your perception of interest rates and their influence on the real estate market? Join us, your hosts Aaron Morrow and Bryan Laflamme, as we unravel the intricacies of the Greater Seattle area's real estate market, discussing the current dip in interest rates and how to seize this opportunity. With the new year around the corner, we underscore the importance of staying proactive in this market. Be it the holiday season or not, making a move could tilt the scales in your favor.

Guiding you further through the maze of real estate, we shed light on how corporations and hedge funds are shaping the residential property landscape. The ramifications of this trend are far-reaching, affecting homeowners and renters alike. But amidst these challenges, we also spotlight the potential benefits and dispel myths around homeownership. We'll debunk the belief that a 20% down payment is mandatory and highlight various assistance programs available to prospective homeowners.

But our conversation goes beyond just the real estate market. Do you understand the role of the Federal Reserve and how federal funds rate and potential recessions impact the economy? Together, we'll navigate these complex financial concepts that directly influence the real estate market. Wrapping up, we introduce our areas of expertise within the Greater Seattle real estate sphere and invite you to connect with us. Ready or not, let's dive deep into the world of real estate.

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Explore through neighborhood vlog tours, city pros and cons videos, and get unmatched insights into relocating to the Greater Seattle area! Transition confidently with guidance from a native Realtor® who's eager to help you settle in your perfect home! 🔑

Whether you are moving in 9 days or 9 months, give us a call ☎, shoot us a text 📝, or send us an email 📨 so we can help you make a smooth move to the greater Seattle, WA area! 

Aaron Morrow Realtor Serving (King, Peirce, & Snohomish counties)
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📨Email: aaronmorrow@livinginthegreaterseattlearea.com
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This is my Intro to every Podcast and YouTube video 

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Transcript

Speaker 1: 0:14

Hey everyone. It's Aaron Maro here. Local World Tour in the Greater Seattle area. Again, it's our second podcast episode of season one here on Aaron Maro real estate for everyone. Here I'm actually joined for my semi regular co-host, brian Laflame, fantastic lender I work with here in the Greater Seattle area through movement mortgage. I'm going to bring them up on stage right now. If you're watching us, by the way, on some other platforms that aren't Facebook, linkedin, twitter or YouTube, if you're watching us on Instagram or Clapper, you can always go over to YouTube. Just read the descriptions on how to find us, brian.

Speaker 2: 1:00

If you're watching us on Wuzzlebug or Street Snap or any of those two, just head on over to YouTube. You'll get the right instructions.

Speaker 1: 1:07

You'll get them. You'll be able to find us. We are everywhere, folks. We're on our podcast, too. You can find us on Newsbreak, too, and our blog posts as well Definitely everywhere. Good, well, glad to have you on, brian. I know we tried to get you on for our first episode but didn't work out last week. But I was able to rope in some of my colleagues at last minute. That was great, it was fun getting them on.

Speaker 2: 1:32

You're welcome in there.

Speaker 1: 1:34

Yeah, thank you. I also wanted to mention some of my followers on here, or my subscribers. They've seen my playlist that I have on here. That is my video testimonials from past clients. We've been working together for a while now. I think there's two testimonials on there from past clients of ours, miriam and Laura.

Speaker 2: 1:55

I'll just show them on the screen real quick, Like we're saying we've got a few in the good pile. We've got about 15 or 20 in the just horrible client experiences playlist which, in hindsight, that was a bad thing to create.

Speaker 1: 2:08

Yeah, we definitely nuked that playlist because I just don't know why we would try to curate that and work so hard.

Speaker 2: 2:15

I'll tell you guys, podcast listener and watcher. If you have any enemies, aaron and I would be happy to do a horrible job for them and then they go in the horrible experience playlist. That's what we do. We love helping your friends and families. We do a great job. If you have enemies, we'll do a horrible job. We'll be very petty with you. We're full service.

Speaker 1: 2:35

Full service yes, exactly. Well, Brian is definitely the jokester when it comes to our podcast.

Speaker 2: 2:45

That's totally. That was probably not serious.

Speaker 1: 2:48

No, no, it's good, yeah, fantastic. Well, Brian. Yeah, I know last week we were actually going to want to talk about some interest rates and kind of how they're going a little bit down, a wee bit down in an opposite direction. Yeah, I know they kind of hiked like crazy over the last 20 months or so.

Speaker 2: 3:10

Yeah, it's been March or last year.

Speaker 1: 3:12

I don't know. It feels like it's been 20 years. I don't know, it does.

Speaker 2: 3:16

We just been. Since March last year we've just been coming to work and getting kicked in the gut every single day.

Speaker 1: 3:20

Yeah, yeah, seems insane.

Speaker 2: 3:24

It looks like you've turned a corner. There's.

Speaker 1: 3:27

I almost before.

Speaker 1: 3:30

I almost turned one of your videos in a reaction video just because I was getting so excited watching your commentary on this pivotal shift that we're coming through with the slight dips that we're seeing and you know what. So in that video that I caught, the main takeaway I got from it was this is kind of one of those perfect times to really get off the couch and buy right now, before it starts getting really hot out there, and I'm already noticing some competition to heat up, even during the holidays right now, where normally, cyclically, it's a seasonal slowdown.

Speaker 2: 4:08

So next week I'll have a couple of charts. Our computer went down. Everything has been trying to make this not happen. My computer crashed this morning and we're getting it replaced, so I don't have all the normal files that I would have to share, but next week, if we do this again, when we do this again next week, I'll share a couple of slides about what it means to be on the front end of the curve when you see things happening.

Speaker 2: 4:28

So the market I liken it to it started in late October. It started taking the first step on a thousand mile journey for rates to come down, which is great, because you can't get to the in destination if you don't start, and we haven't started yet. We hadn't started yet. We had a couple of false starts, but eventually the rest of society, the rest of the market buyers that have been on the sidelines are going to catch on. When rates went from 7% to 8%, 5 million more people were mathematically eliminated from being able to purchase a $400,000 house. When rates went from 7% to 8%. Rates have come back down now from the 8th into the low 7th in some instances, maybe some high 6th, and so that's 5 million now. People that have been that are now mathematically able to purchase a $400,000 house. But also you have to take into account the people who emotionally now are going to want to jump back into this market, the people that didn't get mathematically disqualified as rates went up, but they just got emotionally beaten down, they got fatigue as they kept seeing rates go up. Those people are going to be coming back in as well and a lot of we're counseling and coaching a lot of our business partners and a lot of people that are getting pre-approved to buy a house. And now I know it's not normally December isn't normally the time to be buying a house, but you want to be out in front of people that jump into the market after the new year when normally people start kind of putting their feelers out there again, this time January 1st, the first week of January last year we had the largest increase in mortgage purchase application activity in history and you'll remember that in January last year we're down to 5.99% before coming back up in February with some pretty negative jobs numbers. But the market spoke that as rates went from the high sixes to low sevens in November, december last year, where we got all the way to eight. This year we got to the high sixes and low sevens at the end of last year and when we went down to just 5.99, the market spoke and people jumped in.

Speaker 2: 6:34

I want to be the person who's acting before that. I want to be the person who has less competition. I want to be the person who is able to still negotiate closing costs. I want to be the person who is still able to negotiate in my favor when I'm talking to a seller, because there's not 15 people behind me. That's who I want to be. And we see the market and we'll talk about it in a little bit where rates are going and why we think that, and as the rest of society here catches on, people will be jumping in and you have a chance to be up in front of them or you have a chance to be competing with them.

Speaker 1: 7:08

Yeah, no, that doesn't really all make sense. Brian and I was saying last week we were talking about how markets are cyclical to you and just normally around the holiday seasons buyer turnout is typically lower. I found that traditionally my buyers usually get the best deals around the holidays anyways. I mean every year. I feel like over the past six years I've gotten a buyer to just get a fantastic deal on a home without fail. They've always gotten a home that's significantly below list price, even during the pandemic around the holiday. Now I'm not talking about after New Year's, that was different, right, but around that Christmas time or the holiday season in December.

Speaker 2: 8:03

We're all fat and happy and worried about other things and don't want to move.

Speaker 1: 8:07

Half agents aren't working. All the people are out of town or they're not looking, or some of the sellers aren't doing anything. That's usually, and not only that. I would say that's when I look back at my numbers, how many deals that I've done with my clients when because every year I do a few different off market deals where they were on the multiple listing service they weren't listed. I get at least one of those are around that time frame too, so that's usually. That's another avenue that a buyer can go down to get secure. A really good deal is finding an off market deal that's not on the MLS.

Speaker 2: 8:53

Those seem to be more and more popular. Up until November we had been trending nationwide at the lowest level of new listings each week in history on record. So each week the amount of properties that came onto the market that week were lower than that they had ever been for that week of the year for 15 consecutive months, until November, when rates started to move down a little bit and it just barely eaked it out, because it's like the holiday season. But off market deals, because we have such incredibly tight and low inventory, is a really good way to kind of strategize in this market for what you may want, because the only thing lower than buyer activity right now is the amount of listings on the market and buyer activity is going to fix itself as rates go down but that's not going to add more listings off market deals would be a great way to have a supply issues still.

Speaker 1: 9:45

And we're still going to have a supply issue once rates go down and buyers come back into the market. And now they're going to be entering a market where interest rates are coming back down but they're not down into the threes anymore like they were in the coming down.

Speaker 2: 10:04

You're going to pandemic like feeding frenzy with buyers, but rates are going to be at five and a half instead of three and a half.

Speaker 1: 10:11

And house prices are still going to be strong, like for the Seattle era. We're still one of the top 10 most expensive areas to live in in the United States, and that's not going to change because we don't have the house.

Speaker 2: 10:23

I think I did a thing last November or April about the last 10. I did a class inside of our inner circle Facebook group of Facebook that we have for business partners and I did. I looked past at the last 10 years, from 2012 when the market bottomed after the 2008 housing crash, market bottom in 2012 and started to come back up, and for 10 consecutive years 11 now in 2023, so called experts had called for housing crash, housing bubble and a housing crash. So I went through all of their logic, what they said would happen and then what actually happened and what the conclusion I came to after diving so deeply into all of that research is we're unfortunately not going to have enough inventory until a certain generation gets a certain age and starts to leave the housing market without buying new houses. So when baby boomer generation moves and it's going to be about 2030, when the youngest of them, or the old yeah, the youngest of them will be at the age when most of them are moving into assisted living or, unfortunately, passing away with just normal lifespans that is going to be the thing that finally loosens up some of the housing inventory, because we can't build it past enough.

Speaker 2: 11:33

Right now we're building about 1.4 million homes a year nationwide but we have 1.5 million new home, new household formations, every year. So we've, for 15 straight years we've built fewer homes than we needed for household formations and we continue to increase that deficit every year. So new construction isn't going to pick up the slack. And I mean resell homes are just the amount of homes we have. They're just resell homes. That's what there is. So we have a bit until inventory loosens up. Unfortunately it's expensive.

Speaker 1: 12:05

I completely agree with you and not to take us on a wild tangent, but not only that, but with all of these corporations that are buying up the resale market as residential for rental properties. And there are large pockets of the United States where there are these new construction developments that are being built for rent. So I'm not seeing them so much in the Seattle area, but there are these pockets of the US where these companies they're building new construction properties as large master plan communities and all of them are for rent. You can't buy these houses.

Speaker 2: 12:51

And rental properties. So hedge funds as of June 2022, it's the latest data that I have Hedge funds own 3% of all single family homes in America. That's incredible. That's a huge number. Now, if they put that all of them onto the market as new home inventory, it's not going to really get us to where we need to go.

Speaker 2: 13:09

A lot of people thought the Airbnb kind of, as Airbnbs became less and less profitable when people, post-pandemic, stopped, wanted to travel quite as much and stay in Airbnbs, I thought, hey, if all these Airbnbs go back on the market, if the short-term rentals go back on the market, it's going to really flood the market with inventory. Airbnbs are less than 1% of home inventory. It's not going to. It wouldn't have an effect. But hedge funds own 3% and there was a bill just introduced in Congress to ban hedge funds from owning residential real estate, which I am 100% for. I think in Germany you're tapped out at like 10 doors.

Speaker 2: 13:49

There's European nations that have dealt with this already and what these hedge funds do is they come in and they buy a bunch of homes in an area and then they rent these homes out and they buy the last home a lot of times, not every time but buy the last home more expensively than they bought the other homes, and then that ups the value of all those homes. They rent them all out. They can set the market for rent and now they have an appreciating asset because they've taken supply away, so it's going to falsely appreciate and they get a dividend every month in this rent. It's genius. And they can buy these things with cash, so they don't really have many carrying costs either. It's the same as buying a stock and letting it ride. But what it does is it pushes out Joe and Johnny and Sally homeowner from being able to buy their first home.

Speaker 1: 14:32

I agree. I think it makes it hard for everyone. It's making it, it's.

Speaker 2: 14:38

I hate to use this term because it's not trickle down economics but it's a trickle down.

Speaker 1: 14:43

It's a trickle down effect as far as like it's tough on. It's tough on the renters, it's tough on. It's tough on our normal average Joe homeowners, it's tough on even like the normal landlords that are not.

Speaker 2: 14:59

Yeah, they're not a corporate landowner.

Speaker 2: 15:02

you know landlords, you know, yeah, we had some legislation that was put up in Tacoma, some local legislation about what, what. You couldn't evict a family during the school year If you're a landlord and you couldn't have, you had to give them so much notice. It just made it really much more difficult for a landlord to evict a renter, which you shouldn't be taking advantage of people not paying rent if you can pay your rent. But also, most, like you said, most landlords are just mom and pop, somebody who bought a first home and then, instead of selling that home, they wanted to give it away, put it in their, their estate to you know, pass down to their children. They rented it out and bought another home as they moved up. That's most landlords. Most people that are landlords own one to two houses and that it really affects those hedge funds coming in and buying really affects those people and this, that sort of legislation, is trying to stop big corporations from doing that. But most are mom and pop.

Speaker 1: 15:54

Now we'll get passed. Let's wait and see.

Speaker 2: 15:57

Let's wait and see. Yeah, probably Maybe.

Speaker 1: 15:59

Lobbying, we'll see, it might get killed.

Speaker 2: 16:02

Yeah, also trickle down. Economics has always had a negative trickle down effect, so it did something good trickle down.

Speaker 1: 16:08

Yeah, it would be a nice positive trickle down economic effect. But, yeah, no, I definitely agree with you. And again, to come back to the interest rates and one more. One more thing that I didn't want to mention is just for for our listeners that aren't local to the Seattle area but are thinking, because we get a lot of people that are come to our channel and are contemplating making the move to the Seattle area.

Speaker 1: 16:33

Some people, when they they start, you know, thinking about making that move, they look into the rental process over here and sometimes it's really tough to find a rental here too. Like our rental laws are so strict on both sides for landlords and tenants, like it's gotten so tough to to basically get find a rental into, qualify to to get into a rental where you I you know, I tell all my home buyers that you know I think you're shooting yourself in the foot If you don't at least look into what your options are to see if you qualify to buy a home. You know, if you're going to move over here, why not at least look into the home buying process to see if you qualify now or at least get an idea of what you know? Let's get a baseline, going of of where you need to be, because the worst case scenario we ever get is someone just doesn't qualify yet. And what?

Speaker 1: 17:37

What do they need to do to get there? You know what? What can we do? What sort of problems do they need fixed? You know, and this is, this is your arena. That's not on me, cause you know you're the most.

Speaker 2: 17:48

You're. One of those myths out there still is you need 20% down to buy a house, and so then people don't even look into it. They think, well, I'm going to have to rent because I don't have 24% down. They don't even allow themselves to contemplate, or they don't know. Let let it into their consciousness that I could actually be a homeowner. And it's such a pervasive myth and I will tell you. We've helped over a hundred families this year and I could probably count on two hands the amount that put 20% down. This it's just not a thing that is normal Like. And why would it be?

Speaker 2: 18:16

I'm a big fan of leveraging other people's money and a quick math problem of if you put 5% down in a $500,000 house, that's $25,000. And if you know historically, say you buy in Pierce County, the historic appreciation rate in Pierce County is 5.06%. So say that house goes up normally 5% next year. Well, if you put 20% down, which is $100,000, that's awesome. You've made 25% of your money because your house went up 25 gram. That's great. But if you had just put that 5% down, you've doubled that money. So the return on investment the more you leverage, the thing that's so unique about real estate is the ability to leverage an asset with relatively small amounts of money. If you can afford the mortgage payment comfortably, why would you put more down than you have to? You could use that capital to do anything else. That's going to make you give you a return, but your ROI is going to be incredible and say it goes up 5% again the next year. That's compounding from the 5.25. Now you're at 5.51, 2.50. So you've got a 200% return on your money in two years by putting that 5% down and you've already got to live somewhere anyway. So it's an asset you get to utilize, you get to make memories in, you get to live, you get to pass down. If you set up your estate plan correctly, you can pass it down with very little taxes to your heirs and you can leverage such a small amount of money. It's fantastic.

Speaker 2: 19:38

We were talking about, yeah, that difficulty of people thinking that they can't even purchase. The rental market is at an all-time rental vacancy rate at an all-time low, so it's hard to get into the rental anyways and you don't have to have as much money as you think you do. I like to tell people, I do tell people like everybody can buy a home. It's just a matter of where you are on that journey. There is a journey that leads to the front door of your house and maybe you're on the front steps right now or maybe you're down the street.

Speaker 2: 20:06

But just finding out where you are so that we can build a plan to get you where you want to be, whether it be tomorrow, next month, six months, next year or a year and a half, like we talked about at the beginning, with interest rates, taking that first step of that thousand mile journey towards working their way back down and they've taken multiple steps since then. You can't start a journey or you can't finish a journey if you don't start it. And talking to a lender, talking to somebody you trust, if just kind of get a snapshot of where you are and how and what steps you can take to get to where you want to be. It's just a fact-finding mission and it is the smartest thing most people can do. There's so little pressure to just find out where you are.

Speaker 1: 20:44

I completely agree with you and I think the biggest obstacle in the way for most people is that, well, a couple of things. It's the unknown, it's just the lack of what they don't know. They don't know what they don't know, but it's also that fear of just having to go through being told no, and I think it's also. We have a huge issue, just, I think, just socially, just how our nation is. We have this even just. It's not just this generation, this current generation or just, but I think just the problem with the US right now is there's a lot of people that want this instant gratification.

Speaker 1: 21:31

And getting a house into a home ownership is not. It's not instant gratification, it's not sexy Building up even that small amount of savings. It takes to for some people, wherever they are geographically, because there's different pockets to the US where I'm chatting with my Rolter buddies on TikTok. There are different parts of the pockets of the US where you can get a decent house for $250K. That's not here.

Speaker 1: 21:59

But even building up a few thousand dollars, a couple thousand dollars sometimes, that's hard for people to really focus on and do that. And a lot of people even hear when there's down payment assistance programs and there's, you know, even when they know that they only have to do three and a half down or three percent down or sometimes there's conventional loans that they can do one percent down. All these different programs out there for houses isn't here. When they learn all this and they take the totality and they talk to you as the lender, wanting to take the discipline necessary to save up, to do that versus being like but I want that fancy sports car now Like. I'd rather lease that now and do that.

Speaker 2: 22:53

If that's more important to you, that's your choice as an adult to be more important. I'm not going to stand in the way of that, but you have the information.

Speaker 1: 22:58

No of course I tell you of course, yeah, and I think that's where some people and I think they share that info, and some people don't even go to the point where they get to the table to make the application.

Speaker 2: 23:11

Yeah.

Speaker 1: 23:12

So I think that's where we run into, where I talk to some people, where because there's a lot of times where, like when I talk to all of my real estate peeps around me, right, and there's a lot of you talk to clients that really seem excited and generally like, hey, home ownership is something I want to do, like this is something I'm really into, I really want to become a homeowner and that's what we're here to do. We're here to help improve and change lives through real estate, through home ownership, right. But then there's that disconnect. The moment you introduce them to a lender that you know like and trust that they should talk to you and get that next ball rolling, some people never start that next step.

Speaker 2: 23:59

No matter how meaningful.

Speaker 1: 24:01

You've made that handoff. They'll never take that next step into making that you know yeah.

Speaker 2: 24:08

It's very intimidating for people and very vulnerable and they could feel very.

Speaker 1: 24:12

Yeah, I agree.

Speaker 2: 24:14

And you know, I think it's because as a society we set up that you're, you know how much money you have or how many, what your credit score is or how much money you make is some sort of reflection on your value as a person, and we try very hard at the local line group to dispel that myth. That, like that, means nothing. Also, I don't remember tomorrow what your credit score was or how much money you make. It's just a formula that we got to plug in to be able to get you to where you want to be. But we do believe in this society a lot that that is something that speaks to our value as people and it's just absolutely not what speaks to the value.

Speaker 2: 24:48

Your value as a person is taking a risk, doing what's best for you, doing what's best for your family, even when you're scared. And I gotta tell you selfishly, there's no feeling like being able to sit across from somebody or zoom with them and let them know that, yes, they do indeed get to buy a house. They never thought they could. No one in their family had. They had no idea that they could buy without 20% down or that there was down payment assistance or just that like that feeling that you get when you give people keys and they're homeowners now and being able to be like, yeah, you get to buy a house. And there's so many meetings where I cry with them. They just mostly because I prank them and then they get scared and I ruin the whole moment and then you want to cry.

Speaker 1: 25:31

Or you prank me, you know you have them. Call me like right before closing in like I don't want to work with Brian anymore. Like Miriam.

Speaker 2: 25:44

Yeah.

Speaker 1: 25:45

I completely agree with you, by the way, like that. I mean, it's one of the big. Why is why you do it? One of you know I love working with everyone that's looking to buy or sell and move up buyers, people, retirees that need to downsize but I still always go back to I love working with first time home buyers, just because that's such a phenomenal life changing thing when they get the keys to their first home that they get a call there. That is like the drug to me every time.

Speaker 2: 26:22

We get to be a small part of something that's so memorable to people. Whether it's their first or their fifth, it's a big deal. It's memorable, especially when it's their first, especially when it's their first, and there's just something about. The pride of going to Lowe's is different. Going to Home Depot is different, like everything is different when it's yours.

Speaker 1: 26:43

Yeah, yeah, exactly. Well, I'm going to talk about rates. Yeah, let's, let's talk about rates. Do I need to pop something up for you? Let's see.

Speaker 2: 26:54

Yeah, I'm going to do a little screen share with you guys and I'm going to bring you through kind of a history from the beginning of covid till now, what's been happening and why. So bear with me, I'm on a different computer and the screen is a little smaller, so it's not going to be quite as fluid and you guys don't have to understand all that's going on here.

Speaker 1: 27:11

I'll explain it as Brian's main computer got like nuked right before I did go live.

Speaker 2: 27:17

But we persist right.

Speaker 1: 27:20

We are soldiering on Yep.

Speaker 2: 27:21

You are. So this is if you, if this is a 10 year treasury market, and if you notice these daily moves green and red, each of these candlesticks are a daily move. Look at these huge moves. This is March 2020, the very beginning of covid. Look at how they dwarf the rest of the daily moves there's been some large one, but none as large as this.

Speaker 2: 27:41

And you guys remember all the fear that was going through society and we didn't know if we were going to shut down the economy for good. We didn't know what was going to happen. We didn't know if we're going to survive. There's so much fear and the market hates uncertainty, and that's all we had was uncertainty. So that's why you see these huge moves up and down, up and down, up and down. What happened was a Federal Reserve stepped in and they started purchasing mortgage back securities and 10 year treasury notes. They dropped their federal funds rate to zero and they started purchasing mortgage back securities and 10 year treasuries to calm the markets the US bond market, which is the largest market in the world by a long shot it's not even close and the mortgage back security market to calm the housing market as well. And so you can see these very low 10 year treasury yields 0.5, 0.6. We got down to 0.2, something 0.25 as our lowest. You don't have to understand what that means. I just want to walk you through as we're moving here. Even these moves up aren't real big moves up.

Speaker 2: 28:34

This is what was keeping rates of the two and a half, three, three and a half percent mark, and the Federal Reserve continued to buy mortgage back securities and treasuries all the way through 2020, almost all the way through 2021. In October of 2020, they announced that they're going to taper those purchases of mortgage back security and treasuries. So they're buying over $100 billion per month of these things, which is an incredible amount. And they said that well, right, you know, I think we've done what we need to do. We're not going to get into what we think about how long they went or what the effect on economy had. That doesn't matter. We're just going to talk about the facts. They said we think we're done. We need to do. We're going to slowly taper down these purchases till we get to zero. So in October of 2021, they announced that and they started tapering these purchases, buying a few less mortgage back securities every month and a few less treasuries every month, until they eventually, in March, they got March of 2020, they got down to buying zero mortgage back securities and treasuries every month, and that was right around here. And then look at this move the shot up, just it just. Rates went up quickly to match with inflation until the summer of 2022, excuse me, summer of 2021, where inflation came down for a bit and then shot back up through the end of the year. We finally had a good inflation report in October of 2022. And you can see that right here, november 10th of 2022 was our first positive inflation report, where we showed non-month-over-month growth of inflation.

Speaker 2: 30:09

The Fed had been raising their federal funds rate over and over and over again. Right here in July of June of 2022. They raised it at 75 basis points for the first time in over 22 years. So they're being very aggressive. And what the Federal Reserve does when they raise their federal funds rate or they try to take money out of the economy so the federal funds rate a lot of people will conflate it with mortgage interest rates. So when the Fed dropped the rate to zero, I got a lot of calls from people saying, oh my gosh, did the Fed just drop my mortgage rate to zero? Well, when the Fed started raising rates, it said did the Fed raise my mortgage rate? One of the Fed doesn't do that.

Speaker 2: 30:47

The Fed raises and lowers the federal funds rate as a way to either restrict money flowing through the economy or to push more money into the economy. The federal funds rate is just the overnight rate that banks or charge one another in order to have the liquidity required on hand for the next day. So they get it either from bank to bank, and it's an overnight loan, or they go to the Fed cash window and they do what they call repos. They trade treasuries for cash, reverse repos, cash for treasuries. So it is what the Fed charges. The federal funds rate is what the Fed charges for those loans, and then that affects a lot of other things throughout the economy. It will affect your car interest rate, it will affect your credit card interest rate, it will affect your HELOC rate and it will also affect your CD rate. So what they're doing then is they're raising interest rates on assets or on capital, so it's harder to get that money or it's more expensive to get that money. So people want to take out less loans, so people want to spend less money. They also incentivize savings because they have higher CD money market savings account interest yields, ostensibly. So that's what the Fed does when they raise and lower the federal funds rate.

Speaker 2: 31:59

The reasons affected mortgage rates so profoundly is because the Fed participated pretty heavily since the late 90s definitely in the 2008 real estate crash, and more so than any other time during COVID and what they call quantitative easing. So they added a bunch of money into the economy, they created credit and they moved it through the economy. And when they started taking money out of the economy through what they call quantitative tightening, the markets have been reacting to what they think the Fed is going to do and how they think the Fed sees the economy and how their monetary policy is going to be moving forward. And the raising and lowering of the federal funds rate just kind of speaks to that and so acutely affects mortgages because of how quickly they raised interest rates after keeping mortgage back securities and treasuries so low for so long. So you can see here how interest rates went down. This is November 10th and they went down.

Speaker 2: 32:59

We talked about this in the beginning how purchase applications increased. First week of January purchase applications shot up to the highest level like the difference week over week, the highest level that we have on history and history because interest rates had gone down so quickly. And then in February we had some pretty negative or positive job data, depending on how you look at it. The more jobs we have, the healthier the economy is, the higher interest rates will go. The higher interest rates go, the higher mortgage rates will go.

Speaker 2: 33:27

So positive economic news is negative for interest rates. Negative economic news morbidly is positive for interest rates. You can see us here climbing up and up and up an interest rate and then this is where this is sorry, this is December, and then this is our move down in January. I can't see the dates down here, so I'm a little bit off. This is our move at the end of December, but this is our move down to 5.99 percent in our mortgage interest rates. And then we moved up because these negative jobs jobs report. You can see this red candle right here. That's what that is. And we continue to move up until Silicon Valley Bank collapsed in March Of this year. You'll probably remember.

Speaker 2: 34:07

Yeah yeah, so Silicon Valley Bank collapses. We think the banking sector is gonna collapse. The Fed comes in and FDIC or we can. We can do another video on what happened and why. But the Fed came in and threw a couple of new, Old and new programs. They stopped other banks from collapsing. But the problem is still there.

Speaker 1: 34:26

That'd be a cool follow-up to do, because I remember that's actually the first, if any, any returning channel members on YouTube channel. That was your first exposure to Brian, as we had Brian record a video for me that I kind of did an introduction. You're on the channel from that, yeah.

Speaker 2: 34:44

Okay, yeah, so we go over that again too. And then rates continued to go up until, and the rates went up At the end of summer, through September and into October, mostly because of one where the Fed, in their and their meeting, they have a thing called a dot plot, which is where they see the federal funds rate moving forward over certain amounts of time into the future, and they saw rates being higher for hunger. But we started to get, and also in June, which is the summer we had, we raised, we took away the debt ceiling. We didn't raise it, we took away the debt ceiling. So there is no debt ceiling. We've added about two trillion dollars in debt since we took away the debt ceiling and we cannot revisit it until 2025.

Speaker 2: 35:21

So, as we took on more debt and the interest rate, the yield on tenure treasuries and other Treasuries along the yield curve continue to go up and up and up and up. What this is is the interest that the government has to pay when they give you a treasury bond, and so, as the interest went up and up and up, became more expensive and our debt burden ballooned up to about 900 billion dollars a year in just interest payments. I think. I think by the beginning of this year, our beginning of next year, or our payment on interest is going to be larger than our defense budget, which is crazy. It's one reason why I've been saying for the past year and a half that this isn't going to be a thing, that's going to stay. It's not a new normal. If we cannot wear debt society, a debt growth Society, and the government cannot afford For yields to get too high, because then we cannot perform on our debt. We've already gotten downgraded once in the past few months, and so, as debt got more expensive, we had to issue more treasury notes.

Speaker 2: 36:15

And, as I said, to issue more treasury notes, we have more supply. More supply means less demand, just by default, and so then we have fewer and fewer buyers to more and more sellers, and so of course, in the price has to go up because and you have to in the price has to go down, excuse me then the yield has to go up, you have to give more interest to entice more buyers, and so that continued to drive rates up until finally the treasury came out and in Late October was really good for rates. That's this area right here, the secretary. The treasury came out and the treasury said that they needed a lower refunding Requirements and they had expected in the first quarter of 2024. What that means is they were going to issue they was like 70 to 90 billion less in treasuries and they had expected. So that's pulling some future supply off the market. That was really helpful. We had a very negative or positive jobs number, so negative jobs number, positive for interest rates, to remember. We had another really good Consumer price index inflation Report which showed him core consumer price index going down to 3%, which was fantastic and that moved rates down.

Speaker 2: 37:22

And the good thing about this is you'd see a rally and then you'd see a little bit of calm and then you'd see a rally and you'd see a little bit of a calm. They'd see a rally, so it wasn't just buyers coming in and taking profit and buying, but you would see this calm in between these rallies which really spoke to me as someone attracts us as the market sentiment shifting and you could see that in as rates went up really quickly. Here you had a lot of Fed speakers come out and say well, we think the higher yielding environment is doing the the task of us, of our quantitative tightening, and we're probably not gonna have to raise interest rates any more than we do, then they currently are. And then, as we started to go down, you would see them change their tune and even chairman Powell, the chairman of the fellow reserve, was saying, hey, I'm not sure if we're sufficiently restrictive enough, we may raise again. But the market just didn't believe him anymore. He was the tenured treasure, was front-running and he didn't want to go down too fast, so he tried to throw some cold water on the market, but they just didn't believe him anymore.

Speaker 2: 38:18

And so, as we continue this move downward, we're, we're in In. This is where I called it. Say we did, you know, the first step in a thousand mile journey. As we continue to move down, we continue to make steps on that journey towards lower rates and it seems like the market is moving in a way that they expect rates to continue to go down. They expect the Fed to be cutting rates I expect in the first quarter of next year and I expect us to either be pushed into a recession or some sort of regional banking crisis. That is going to have to be stepped in and solved and has going to be positive for interest rates as the unemployment rate.

Speaker 2: 38:53

It went down on Friday, but if, as it continues to move up which it will Then we're going to be pushed into a recession, which is always good for housing and it was good for interest rates. So I think we're going to be on this channel a lot more and we're going to be talking about rates a lot more regularly, so you guys can follow along if you're watching, with what's kind of happening week to week or every other week to every other week. This is a Very quick down and dirty, like one-on-one, of what's been happening, and I probably didn't explain it as well as I would like to, because I didn't want to get too into the weeds. I wanted to make sure it was understandable, and then a kind of a chronology of what happened and where we are and why.

Speaker 1: 39:28

Yeah, I think it's a great introduction. Where do you think so, brian? Give us a General because, like right now, we're currently December 9th, right now where we currently floating, right now with interest rates.

Speaker 2: 39:46

So nationwide interest rates are Average right now? This is the most loaded question that every lender hates to answer, because if you come in, it's just rates are so incredibly specific to so many different variables that it is yeah, I'm absolutely give me a ballpark that doesn't get you in trouble with lending practices.

Speaker 1: 40:05

Yeah, so or however, it works because again I will always say that has a realtor. I am layman's terms to know what gets you in violation.

Speaker 2: 40:15

Yeah, Freddie Mac has published their rates in nationwide. Average mortgage rates for 780 credit and 30% down with one point, is right around 7.05, maybe 6.98 to 7.05. Those numbers a month and a half ago were really close to 8%. The reality is, you know, with a small buy down you can get to 6.99 percent, sometimes you can get to six and half percent, sometimes 6.25, depending on if you're doing FHA or VLON, if you're putting money down on a conventional loan, what your credit score is, what your loan term is like there's like what sort of house you're buying. Is it a condo, as a Manufactured home? As a single family? Is it a duplex? There's a million different things. But just know that rates overall have come down about a point in this time, no matter what your rate is.

Speaker 1: 40:58

Which is the big deal. That's amazing for how much they've come up.

Speaker 2: 41:04

Yeah, it's relatively quickly and, yeah, in six, seven weeks, relatively quickly going down. A point in six, seven weeks is, I like to Use the analogy that interest rates take the elevator out and they take the stairs down.

Speaker 1: 41:19

No investor wants to be caught you know, so who pushed who down the stairs over the last seven weeks?

Speaker 2: 41:25

No, we pushed drone power downstairs. No, didn't say he's not a real fellow like the federal, he's not electric official.

Speaker 1: 41:33

I guess it's not right, okay, well, good, no, I think that's be mean, that be elder abuse right.

Speaker 1: 41:42

I think this was a good introduction, though, and if, of course, any listeners, so I will. Again, I'm reminding anyone who are listening to this and audio-only podcast form, you can definitely go to our YouTube channel. That's um, if you look up on YouTube, it's at Aaron Marr Rolter, seattle Washington, or there should be a link to the YouTube channel on the podcast. So then you can actually go watch this in video format so you can follow along with what Brian was saying. If you're more of a visual learner, I myself I'm a Visual audio learner, so I kind of need both to be able to track what's going on here.

Speaker 2: 42:23

But I'm just no, it's good, I'm just a non learner, you're just a non learner.

Speaker 1: 42:26

Yeah, it's good. Well, no, this is great. I'm glad that you're able to come on, brian, and show us this. And yeah, I think we definitely have more to talk about next week to kind of naturally transition into somewhat more this stuff, because I get Clients with like interest rates. I think it naturally Kind of maybe as like a teaser to we can naturally transition into net next week.

Speaker 1: 42:49

I think the biggest thing I get when and this might be another loaded thing for you I get clients all the time that are always like well, I saw that, I saw a posted rate somewhere that said blank this, but why? Because my credit score is 620? Why is one lender claiming this and the other landers claiming claiming this on me? What truly is the rate you know? So I think it'd be good to maybe like cover some of those questions. So then we can kind of just give some of our viewers Some clear guidance on to how all those practices work, because will be nice to cover through this channel is people to have a better understanding of how the I Know really well how the real estate side of things work and I'm kind of doing this and partnering with you on this to actually understand how the lending side works better as well, teaming up with you just because It'd be nice to be able to answer those questions better for those clients out there that just get so confusing in the weeds on it, you know, because a lot of times it does get confusing.

Speaker 2: 43:54

Well, you were explaining an incredibly complex financial instrument in yeah, and you down in a bite of an interest rate and a payment, and that's a disservice to a client. What is my rate? Why is my rate? Almost every lender you talk to will not be able to tell you why your rate is. They don't understand what a hedging strategy is. They don't understand what mortgage-backed securities do or are, or some have a layman understanding of it. It's super important and it's really hard if these professionals don't get it because they're not traders, which is different than a lender. They don't understand what's going to affect the market and how it's going to affect the market, and Even what the market is or the size of the market. It's really difficult to explain to a consumer and it can be frustrating, I imagine, as a consumer, to say why I saw this rate online, but this, every lender is telling me a different rate.

Speaker 1: 44:38

Yeah, I was just telling them. It's dark elf magic and you aren't ever gonna be under able to understand it, you know yeah.

Speaker 2: 44:47

Well good.

Speaker 1: 44:49

Yeah well, brian, that was awesome, very thorough. You know we're at the 45 minute mark. On anyone that has any questions on this, if I if I miss any of your comments because I'm so focused on the live, I will answer everyone's questions. I'll get back to your comments once we go back to this quick reminder again. This was Brian Laflame, my co-host. He's through movement mortgage. He works with anyone through all of Washington State. My name is there a Mara Rolter, in the greater Seattle area. I work with people in King Pierce, noamish County's buyers and sellers. One thing I will remind you guys we get call-stacks and emails from peeps just like you looking at, buy or sell in the greater Seattle area and we absolutely love it. So Whether you're looking to make your next move in nine days or nine months, please just give me a call to me tax, send me an email or my favorite, schedule a zoom. All of my contact information and Brian's contact information is going to be found in this YouTube video. Let us know if you guys have any questions.

Speaker 1: 45:52

Those are some of our happy clients in the background, but other than that, see you guys on the next live podcast, or whatever we call these. We are out.