Lead Analyst On How To Talk To Consumers About Mortgage Rates
When it comes to mortgage rates, it helps to have multiple perspectives. If you’ve been a BAM reader long enough, you’ve read several different predictions from different housing experts on what we can expect over the next 1-2 years.
You also heard a prediction from a respected housing expert during BAM Pro Bowl.
And, last week, on the Knowledge Brokers Podcast, Logan Mohtashami, Lead Analyst for HousingWire, shared his own thoughts on mortgage rates.
Anyone hoping to buy a home in 2024 is likely hoping rates fall below 6% sooner rather than later. But given the relationship between the 30-year fixed and the 10-year Treasury Yield, later seems more realistic.
Read on to get a sense of how the conversation went. And be sure to watch the full podcast episode to hear the whole conversation.
HOW LIKELY IS THE 30-YEAR FIXED MORTGAGE RATE TO HIT 5% IN 2024?
Byron Lazine brought up the idea of mortgage rates falling to 5% in 2024—and specifically how this prediction could influence anyone wanting to buy or sell a home in the near future. He asked Mohtashami for his opinion on whether 5% mortgage rates were likely this year. After all, most projections call for 5% (high 5’s, at that) happening maybe in the fourth quarter.
Logan started by addressing the relationship between the 30-year fixed mortgage rate and the 10-year Treasury yield.
You have to follow kind of where you think the bond market is going because, I always say this, the 10-year yield and the 30-year mortgage rates, they have been slow-dancing. They are a love couple since 1971. So, where you actually think the 10-year yield will range is where the mortgage rates will range. And unless you’re a bond trader or someone that tracks the 10-year yield, you really shouldn’t listen to anybody on mortgage rates, unless they give you a forecast range.
When I started incorporating these in my forecast in the last decade, I try to give people ranges and then every single day, we go over what’s going on and what drives it. And it’s really Fed expectations, inflation expectations, the macro data. These things actually drive mortgage rates and the 10-year yield. Logan Mohtashami - Lead Analyst for HousingWire
When the 10-year reacts to a Fed announcement or anything that could motivate the Fed to raise interest rates or hold off on rate cuts, the 30-year fixed generally reacts in the same way.
SO, WHAT WILL IT TAKE TO GET TO 5% MORTGAGE RATES?
Following up on his point about the spread between the 10-year yield and 30-year mortgage rates, Mohtashami went on to spell out exactly how we can get to 5% mortgage rates.
Of course, the spreads are really bad right now. But if you had to ask me, ‘5% mortgage rates: how do you get there?’ Okay, the labor data gets weaker, the Fed has to pivot, and the spreads have to get better. And then, in that environment, the 10-year yield gets below 3.21, you’ve got 5% mortgage rates in that scenario.
So, when those things occur, then you can move into that direction—but none of that is happening right now…I’m not a Fed pivot person. I don’t believe the Fed has pivoted yet. So, the things aren’t in place. Logan Mohtashami - Lead Analyst for HousingWire
Byron has mentioned Mohtashami’s “Gandalf line” many times on Hot Sheet as well as on Knowledge Brokers. It’s called that in reference to Gandalf the Grey staring down the Balrog in Lord of the Rings and saying, “You shall not pass!”
The Gandalf line is where the 10-year Treasury yield reaches 4.25. We’ve been there—and beyond. And we’ve survived it. It’s not where we want to be, and a 4.25 yield clearly does not go hand-in-hand with mortgage rates in the 5% range.
But signaling that we’ll see 5% rates in 2024 could potentially lead to consumers putting their homebuying plans on hold until rates go down. Meanwhile, home prices continue to rise, thanks to low inventory.
And typically, as mortgage rates do go down, buyer demand (i.e., competition) goes up.
WHAT SHOULD YOU SAY TO CONSUMERS WHO ASK ABOUT RATES?
The monthly mortgage rate, on its own, can’t tell your buyer what they’ll be spending every month on their mortgage payment—not to mention additional costs like homeowner’s insurance, property taxes, and the costs associated with home maintenance and repairs.
If you’re an agent, and a consumer’s asking about the future of rates, should you just talk about what’s happened in the past? What should be your commentary around rates when you’re asked that question? Byron Lazine
Mohtashami’s answer gets right to heart of why consumers ask about mortgage rates, skipping over any rate predictions that could be more distracting than helpful.
I always give people payments. ‘This is where your payment is at 6%. This is your payment at 5.5%. This is your payment at 5%. Depending on where the purchase price is, you guys have an idea. Focus people on the payment level. Because, in reality, we’re talking about a couple hundred dollars…Focus payment over rate…You want to get people pre-qualified, so if they get to a level where the payment is comfortable, you’ve got to jump on it. Because what do we know right now? There’s not a lot of inventory out there…Focus on payment levels and give them something visual to see…
This way, they know. When they’re ready, they know. I always have this thing, when people tell me, ‘Should I buy a house?’ Every time, I go, ‘No,’ and they’re like “Why?” …If you’re asking me if you should buy a house, you’re not ready. Logan Mohtashami - Lead Analyst for HousingWire
When a buyer is ready, they get to work learning about their options. They find out how to pay as little as possible per month on the mortgage loan for the home they want.
Motivated buyers typically don’t ask, “Should I buy a house now or should I wait for rates to go down?” To buyers who ask that question, Mohtashami would be more likely to point out the perks of continuing to rent—until they are ready to buy.
Also, quoting the day’s average doesn’t take the potential for mortgage rate buy-downs or other buyer incentives the seller or builder of a particular home may be offering (or willing to offer).
Giving your client a clearer picture of what they’ll be paying at a particular rate is ultimately more helpful than predicting what rates will do within the next 12 months.
If they’re able to buy a home now—with or without a mortgage rate buydown—waiting for lower rates could result in more costs than savings.
“HOMEOWNERS’ BALANCE SHEETS IN AMERICA HAVE NEVER LOOKED BETTER”
During the podcast, Mohtashami stated the following a few times:
“Housing is the cost of shelter to your own capacity to own the debt.”
Meaning, as your capacity increases, your cost of shelter goes down. The combination of our 30-year fixed mortgage rate and people staying in their homes longer means homeowners benefit from a fixed debt cost with rising wages.
The U.S. is the envy of the world because it has a 30-year fixed mortgage. Other countries don’t have this…There’s somebody in Canada right now that’s waking up and their mortgage payment is almost double, right, because they’re tied to short-term rates. In the UK, in Australia…we don’t have that. We have a fixed debt cost. Every year your wages rise, that housing debt cost becomes less. We have never seen such good homeowners on paper. Logan Mohtashami - Lead Analyst for HousingWire
He went on to address the increase in homeowner tenure and how that has contributed to reducing housing costs for American homeowners.
It’s that 30-year fixed, people living in their homes longer and longer. This is, I think, a key discussion that never gets talked about enough: 1987 to 2005, people were living in their homes 5 to 7 years; 2008 to 2024, 11 to 13 years, depending on who you listen to. Some states are even 15 to 18 years. I’ve lived in my house for 20 years. My wages are a lot more now when they were when I first bought my house. So, your housing cost is less in that sense….And that’s what you’re buying with a house.
So, focus on the cost of shelter—the payment. And when they’re ready, they will jump… Logan Mohtashami - Lead Analyst for HousingWire
WHAT ABOUT “OWNERS’ EQUIVALENT RENT”?
Lisa Chinatti then brought up recent data on the housing price index versus owners’ equivalent rent and asked Mohtashami for his take on whether that data should impact buyer decisions.
Mohtashami explained why he considers owners’ equivalent rent data largely meaningless.
One third of society are lifelong renters. That’s always going to be the case. Two-thirds are homebuyers…If you’re living in apartments in your 30s, 40s, and 50s, you’re not going to be a homeowner, unless you get married and you’re part of a dual-income household… Logan Mohtashami - Lead Analyst for HousingWire
If a larger portion of the population were single, that would probably alter the current one-third/two-thirds ratio of renters to homeowners. But as potential buyers get married and have a second income to rely on, homeownership becomes vastly more attainable.
Posted by Sarah Lentz | Feb 20, 2024 | Agent Tactics, Housing Market
https://nowbam.com/lead-analyst-on-how-to-talk-to-consumers-about-mortgage-rates/
@ChuckBarberini - #ChuckBarberiniRealEstate - @ChuckBarberiniRealEstate
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