Fed Cuts Rates, Mortgage Applications Jump 30% Overnight

0:00The real estate market never stops moving, and this week's data really matters for homeowners and investors alike.

0:11What's going on, everybody? I am Henry Washington, and I'm sitting in for Dave Meyer this week. I am also joined by Kathy Fetke and James Daynard. We are unpacking all the latest headlines, including the most recent rate cut data, and breaking down what they mean for prices, supply, and your investment portfolio. This is On the Market. Let's get into it. We'll start with the article that I brought because it's talking about the thing that everybody's talking about this week. And everybody's been waiting for it. Everybody's been waiting for it. And my article is from MPA, the Mortgage Professionals of America.

0:46And it talks about how the 30-year fixed rate mortgage rate has recently dropped to 6.39%, which is obviously the lowest since October 24. But in reaction to that drop, mortgage applications have surged up 30 % week over week, which is seasonally adjusted because we're going into the slow season. But without adjustment, it's up 43%. But 60 % of those applications were for refinance applications. So people who probably bought last year or the year before sitting around 8 % if you're a homeowner and 9 % plus if you're an investor are looking to refinance these properties, taking advantage of the bird in the hand that they have now of a lower interest rate.

1:33Purchase applications, it says, were also up, but just modestly, about 3 % week over week and up 20 % versus last year. And of those refinance applications, a good percentage of them, around 12.9 or 13%, were for adjustable rate mortgages, meaning that people were signing up for ARM loans, but they're not the same ARM loans from 2008. The ARM loans have changed quite a bit since then. So the adjustable rate mortgage right now, what that means is you sign up for a fixed rate for a short period of time. So you can refinance your home, you can get a fixed for three or five years, and then that rate will adjust after that three or five year period based on what the current rate is at that time, or you can refinance that loan again at that date.

2:22So nowhere near as dangerous as the arm rates that scared everybody away in the dreaded 2008. But this is something that I'm doing right now. I've got several properties that I bought mostly in 2024 and late 2023 that have above 8 % interest rates. And I literally started to go through them last week and highlight them on my spreadsheet so that as soon as this rate drop started to kick in, I could start looking at the refinances. And it looks like I'm not the only one that's doing that. What are your guys' thoughts about that? I mean, this is the whole date the rate, marry the house scenario that people have been talking about for years is just get a good deal.

2:59Don't worry about the interest rate and refi later. The problem is that people think rates are going to continue to go down. Now, the Fed has said probably they'll be cutting rates a couple more times and probably next year. But that may not be the scenario for mortgage rates. So I think a lot of people ran into that problem last year thinking I'm not going to refi while it's just six and a quarter percent. I'm going to wait for it to go lower and then it went back up to seven and that could happen again. So I'm glad to see people jumping in and getting it this time.

3:30Henry Washington:You know, so much of this business, depending on what asset class you're in, it's so much consumer mental fear. And I will say over the last six months, the market has been pretty flat, at least up in the Pacific Northwest. I know in SoCal, wherever I've seemed to float, it seems to be pretty flat right now. But there were so many buyers before the tariffs and stuff came out. There were so many bodies. And so I do think that this could have a really good impact in the spring, especially for flippers, developers in your dispo. I don't know if it's going to help anymore towards the end of the year, but in this business, timing is everything.

4:03Henry Washington:And so I know with my staff, I'm like, we are getting everything on market January 30th to March that we had this month where we are going to pump. I don't care if I'm paying more on the construction. I don't care if I'm paying more to get things done. I'm dumping my houses right into that market. And we could still have that pullback. And so, you know, for all those short-term investors, get your stuff done and get it into the right market. Okay. So you're saying January is the time to get properties listed because you're trying to take advantage of the spring seasonality along with the lower interest rates?

4:35Henry Washington:The Pacific Northwest, it always starts heating up like February 1st, or right after the Super Bowl. And then February, March are our strongest months. And April usually has that last kick. And so, yeah, I mean, regardless, it's already a market where it's already busier, even if the market's flat, a little bit of rate cut. And then also people People get FOMO. They have seen pricing come down. You can start to call their bluff a little bit and they jump right back in the market. Kathy, you said something that I want to talk about. You mentioned that the Fed may not lower rates again. And I also said when I was talking about my article that people are taking advantage of the burden, the hand that they have, because we know we have one rate drop.

5:14But along with this rate drop news, everybody kept saying the words they were using. The Fed is signaling two more weight drops. So what does it mean that the Fed is signaling two more weight drops versus how likely it is that that may or may not happen? Well, all the Fed can do is base their information on the past. And that's why it's really difficult to be a data analyst, because you're looking backwards, not necessarily forwards. And so based on the data that they're seeing, if it continues, then they would continue to cut. But what if it doesn't? What if that data changes? Then so does their plan.

5:52And so we as investors have to be a little bit more focused on what we see coming versus what's happened. I think Wayne Gretzky said something about that, right? Watch where the puck is going. So, you know, will we see jobs come around and start to see job growth? Will we see more inflation? I think the Fed is really focused on jobs. So that's going to be the key because inflation isn't horrible right now, but there is more fear around jobs. Are we going to lose more jobs? Is there going to be less job creation or the opposite? So that's where everybody needs to be focused and that's what will determine rates in the future.

6:30But like I said, what the Fed does doesn't necessarily affect mortgages and the housing market. It does affect commercial real estate. We have seen the Fed cut rates and then mortgages go up, right? So don't get too comfortable. Yeah, I totally agree with you, Kathy. That's why I'm working on these refinances right now. Sure, there's signaling of future rate drops, but I'm going to take what I have now. I'm completing a refi and we close on Tuesday next week. This is a rental property and it's always been a rental property. I've never lived in it and I'm getting six, eight, seven, five. So if I can get my nines down to something with the six in front of it, I'm in.

7:11Yeah. I mean, my message would be to people who think I'm going to wait till home prices go down. I'm going to wait till mortgages go down further. Just be careful, you know, because the deals you don't do, you know, sometimes can be the best thing you did or the worst thing. So again, it just depends. But right now, right now we have higher inventory and lower rates. That is good for buyers. That's fantastic for buyers. And that could change because if rates go down, there's going to be more competition in the market and prices could go up or things could happen. Inflation could happen where mortgage rates go up.

7:49So just like to me, this is a great opportunity. If you find something that pencils, go for it. Go for it.

7:55Henry Washington:I mean, for investors, we don't want to be speculative. We want to lock it. If you can improve your cash flow, lock that in. If you have a commercial loan that is expiring or you only have a couple of years, right? Lock it in. That's a dangerous thing to not have secured. I don't think the rates are going to be in the fives in the beginning of the year. I hear a lot of chatter about that. I don't see that happening, but at least where we are, I don't think it matters. It's a mental game. Everyone's waiting for a deal and then you wait too long and you're paying a little bit too much. So the buyers are coming around and we've already seen it actually last couple of weeks.

8:30Henry Washington:We've had so much more buyer activity even before this announcement. I think this will start to open this up a little bit more. All right. Thanks everybody for that feedback. It is time for a quick break, but when we come back, our panel is going to dive even deeper into these headlines, shaping the housing market and what they mean for you. So stay with us. I have friends who own rental properties. They're not real estate moguls. They're regular people who found a smarter way in. Every month, the rent comes in, covers their mortgage, and they keep adding more. And I found out how they got started.

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11:57Welcome back to On the Market. We're here with our panel breaking down the housing market headlines that you need to know. Well, moving on to our next article, we have Kathy, who's going to talk to us about how we should all be receiving inheritances. What's that, Kathy? Well, I didn't get one. I don't know about you guys. Me either. But we're going to talk about that here. This is a Realtor.com article. And the title is, Americans are counting on an inheritance instead of saving. But family homes could be a complication. So to sum up this article, it starts with the idea of this great wealth transfer, which we talked about on a show a couple weeks ago.

12:38And this article even says it's bigger, that economists project that more than$100 trillion of wealth will pass from the baby boomer generation to their children over the next 25 years, and their children being primarily the millennial generation. So with that, the article goes on to say that a lot of these millennials are thinking, well, since that money's coming, I'm not going to worry about my future so much. And I'm going to just worry about today. And there's plenty to worry about today, right? There's a lot of expenses, especially if you're a millennial. You've got kids, you've got daycare.

13:15I mean, you've got inflation, high prices, high home costs. I mean, yes, there's a lot to spend your money on, not to mention$1 ,000 tickets to concerts. I mean, you know, you got to spend your money on that and travel and so forth. So bottom line is this article says you better be careful because the average American expects to inherit$335 ,000 from their parents, while 8 % expect sums of$1 million or more. However, the piece of the puzzle that I'm actually starting to see from young people who were doing this. I could tell they were kind of not working that hard knowing that they're probably going to inherit something pretty big.

13:54And now they're seeing that the elderly person who holds all that wealth is living longer. And to live longer is expensive. Care is extremely expensive. And so a lot of people, senior citizens, are maybe getting reverse mortgages where they kind of use their home as a bank account. So all that equity in the home that might be passed on to their youth is actually being spent on their care through the reverse mortgage. And they're so expensive, high fees. There's better ways to tap that equity, trust me. But a lot of people are doing it. They get sold on it and the fees are super high. What that means is oftentimes the person thinking they're going to inherit all this equity is actually instead inheriting a ton of debt.

14:40Because with a reverse mortgage, the loan actually increases every time the retiree is taking$1 ,000 or whatever out of the house to pay for their monthly bills, that increases the loan. And the inheritance is a big mortgage and a big debt versus equity. So bottom line, never rely on inheritance. It's costing more to be old. If you're going to rely on inheritance, you might find out you're 50 years old with nothing. Really do what you're supposed to be doing, which is saving and investing, which is why we're here.

15:13Henry Washington:Well, and for the non-millennials not waiting for the inheritance with people with anxiety like us that are always out doing more things, though, that is the beautiful thing about real estate, though. You know, there's a bunch of wealth transfer, cost of living, especially for your parents, is going through the roof. You know, I know it causes a lot of financial burden for people. But if you start planning early, you can create a plan that can offset those costs. And, you know, like about 10 years ago, I went on a plan with my mom who didn't have a whole lot of cash around. And we started flipping some houses, doing some private money loan.

15:46Henry Washington:We were growing her income and it got us into a place to where now she can live in a unit for free. And that was the goal is like just earn it to get to free housing. right? Like, or really reduced housing because the housing costs really eat things up, which then gives you more money to pay for assisted living. But that is the beautiful thing about doing BRRRS or doing value add and keeping property. And no matter what the market cycle is, just keep buying. Like if your parents maybe have issues in 10, 20 years, you can start now and really just chisel away and get in a position to where it is not a financial burden and the parents have a good quality place to live.

16:22Henry Washington:And so Henry, Rich and Kathy, did you get notification that we got written into their will yet? You know what? I looked the other day and I was not there. And so I just thought maybe they hadn't gotten around to it yet. But, you know, maybe if you got yours, let me know. I'm so glad you brought that up because a will is still a problem. A will is a problem. You need to trust. And part of the article here, just go out and read it, y 'all. It's a realtor.com article. Americans are counting on inheritance instead of savings. this is a time to have family meetings, to talk about it, to know what's planned, how to take care of each other and your assets if you should be so lucky as to inherit them.

17:04So a trust must be in place or a lot of the money is going to go to probate. So a will is not enough, everybody. Please know that. Get a good attorney for asset protection and for inheritance. That's great advice. All right, we're pausing for one more quick break, but when we return, we're going to hear about how land prices may be declining and our expert panel will share some key strategies to navigate the market.

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21:02All right, we're back on On the Market. Let's jump back into this discussion. Mr. James, tell us about land and what's going on there.

21:10Henry Washington:All right. So John Burns published an article about how land prices are set to decline. To be honest, I already think they're declining. But what they talk about is the demand is so low right now. And there's this standoff between sellers and builders. And there's just not a whole lot of transactions sticking on dirt, on teardowns, and pricing is adjusting. Only 28 % of land brokers say that demand is strong, which is down 76%. We sell a lot of land too. The guys I'm talking to across the board that also move a lot of dirt, the feeling is real. It's not like, oh, my business is slow. No, there's not a whole lot of buyers.

21:52Henry Washington:and really what this is coming into is the land is just too expensive and new home prices I think nationally fell about one percent this year which in other markets like the more expensive markets they said anywhere between four and six percent and the reason land has really really slowed down on the transactions is this is really hard to make money right it takes longer to get permits entitlements take a lot longer cost to build has gone up and now the predictability of sale is taking a lot longer, including the debt cost that has risen dramatically over the last couple of years. Back when you were building new construction before rates jumped, you were getting loans in like the 7%, 7 % to 8 % if you had good financing set in play.

22:37Henry Washington:Now you're 8.5 % to 10%. Things are taking longer, bill costs more, entitlements are longer, and sale prices are dropping. Yes, land should be coming down, but what we've seen, I know on my side, I've seen a lot of sellers going, you know, because land was such a hot commodity and it was so these land brokers are very aggressive in their marketing and sellers were just getting offers for years. And it was just like offer, offer, offer, offer. And, you know, after a while, if someone tells you you're pretty long enough, you really think you're pretty. Everything's kind of locked up, right? And so the transactions are low in, in, but it's been like this now for a year.

23:15Henry Washington:And I think this is where the land's starting to break. And, you know, for, I think a lot of listeners out there. It's like, okay, well, what do you do with land anyways? You know, that's risk guy, real estate to go just buy dirt, sit on it. And that is increasing right now. I don't buy that way. Cause if it can't bring me in any income, I don't want to sit on dead inventory. But what I have seen is a tremendous amount of opportunity on single family houses with bigger lots. Because when we were looking for the burr properties or looking for good holds, you know, the key to hold, like you're building your portfolio and getting massive growth is to buy stuff and path of progress that can get a jolt.