All Encompassing Mortgage and Real Estate Thread

[LCHorn 2620]

1 hour ago, Dbeasy said:

But that 10% also impacts the rest of the wage world to some extent.  When someone is evaluating union vs non-union jobs, there is no question there is a linkage, so increases in union wages ripple through the economy to non-union jobs as well. As to the impact of tariffs, 2/3 of the economy is services, 1/3 is goods.

This is getting off track from real estate, but your presumption about the down river impact of union pay might seem intuitively true to you, but I can think of at least five rebuttals, also that seem intuitively true, that would refute it.  What is it about this particular conclusion that, lacking data to support it, you find so compelling?

Here’s an easy one that’s going to be wildly deflationary compared to union pay-AI is going to make a ton of jobs pretend work over the next five years.  Employers are going to be doing reduction in force, not because they aren’t making money, but because their employees are idle.  This is going to hugely impact tech and the “new middle class” that’s come to replace industrial work.  
 

I think you’ve mentioned you have your law degree, even if you’re not really practicing-AI is already making paralegals superfluous labor and that’s just with where the technology is today.  

[Dbeasy 15050]

1 hour ago, LCHorn said:

This is getting off track from real estate, but your presumption about the down river impact of union pay might seem intuitively true to you, but I can think of at least five rebuttals, also that seem intuitively true, that would refute it.  What is it about this particular conclusion that, lacking data to support it, you find so compelling?

Here’s an easy one that’s going to be wildly deflationary compared to union pay-AI is going to make a ton of jobs pretend work over the next five years.  Employers are going to be doing reduction in force, not because they aren’t making money, but because their employees are idle.  This is going to hugely impact tech and the “new middle class” that’s come to replace industrial work.  
 

I think you’ve mentioned you have your law degree, even if you’re not really practicing-AI is already making paralegals superfluous labor and that’s just with where the technology is today.  

I'm not a lawyer.  I used to run an AI tech company until I sold it and early retired. I don't disagree with you that AI could be very deflationary. I've just been pointing out the other possible future scenario. Given that the discussion has veered back and forth across a very wide road without a lot of definition to what we are really discussing, a big part of the arguing here could be over people thinking of two different problems.  Here is my framing of the discussion:

1. Time frame - In this whole discussion, I've been thinking about a time frame of 5-10 years and no longer, with a particular emphasis on potential inflation acceleration in the next 12-36 months.

2. Why this 5-10 year time frame - because we are running huge deficits currently that will have an impact on longer term rates for the next several years. The supply of Treasuries will be higher than historically, unless you go back to WW2, where we last ran deficits as high as a percentage of GDP.  Coupled with that is a potentially increasing reluctance of other countries to buy as much Treasuries as historically. It will take 5-10 years of government action to get the debt as a percent of GDP under control. Out past 5-10 years, all bets are off because government actions, AI, and all sorts of other influences come into play.

3. What happens in this 5-10 year time frame - the government will pretty much have to let inflation run a little hot because they will need to get spending as a percentage of GDP down and WW2 is the perfect example of what the US did the last time.  Now Trump and Elon are talking about massive spending cuts and I do believe they will do something meaningful, and that will help interest rates and slow down the economy, but the spending problem is so large letting inflation run a little hot must also be part of the tool kit, in concert with spending cuts and growth initiatives.  Now letting inflation run hot means NOT hiking rates up as high, because you want to let it run a little hot. But the challenge is the risk I keep pointing to below, the 12-36 month inflation risk. By the way, running hot is letting inflation run at ~2.5-3.5%, not 5%, for example.

4. The 12-36 month risk - juggling spending cuts, the current momentum around wage increases, still relatively low unemployment, interest rates, etc. is a tough balancing act. We all learned in the 1970's and 2020's that if you cut rates too much too fast (or not raise them fast enough) that inflation can re-ignite, and then someone has to come in with draconian measures, ala 20% interest rates, to stop the inflation freight train. I put the odds on this scenario pretty low but not 0%.  Conversely, cutting rates too slowly and spending too quickly can put the economy in the ditch, which creates a whole other set of problems that might or might not fuel inflation even more due to even higher deficits. The good news here is that employment is ALWAYS the last to go when you enter a recession, so the current relatively good unemployment numbers really mean nothing.  We could be in a recession right now, for all we know, or just a soft landing growth scenario.

I do think you bring up a good point about AI. It won't suddenly produce a massive spike in unemployment. It will be a steady rise over the next 30 years in reducing resource requirements. So that definitely helps offset the potential inflation issue, and raises the odds of lower rates. I'm sure there are other factors that could slow inflation.

Again, I'll just re-iterate what I've now said at least five times. I'm not saying inflation is definitely going to take off again and rates will remain high. I'm saying that betting all your chips on a big rate drop in the near-term is a really bad bet, especially with an inverted yield curve still. In poker terms, your expected return doesn't justify an all-in bet. I personally own some 10 year bonds because I don't believe inflation will spike, but I only put a portion of fixed income into 10 year, and I'm still not much in longer term bonds. Most financial advisors today are also preaching caution on long term bonds.

 

[Wulaw Horn 19069]

Here is my confidence interval for the next 4 year presidential term. 
I will put somebody in a rate that starts with a 3 (right buyer, right loan etc- not run of the mill dude)- 40%

I will put somebody in a rate that starts with a 4 (right buyer, right loan etc)- 90%

I will put somebody in a rate that starts with a 5 (same caveat)- 99%

I will have less than 10% of my buyers pay a handle that starts with a 7 for more than 6 months (90%)- note- we do 1 year buy down as I mentioned from the national average- so my dudes that are at 7.1 or 7.3 on a jumbo are bought down to 6.1 or 6.3 and they exit within that year or shortly thereafter. 

I think the range for the national average during this presidential term will trade between 4.3 and 7.3.

2025 I think the trading range for the national average will be 5.6-7.1. 

2026 I think it will be 4.75-6.25.

My crystal ball gets a little foggier after that.  

 

[Dbeasy 15050]

21 minutes ago, Wulaw Horn said:

Here is my confidence interval for the next 4 year presidential term. 
I will put somebody in a rate that starts with a 3 (right buyer, right loan etc- not run of the mill dude)- 40%

I will put somebody in a rate that starts with a 4 (right buyer, right loan etc)- 90%

I will put somebody in a rate that starts with a 5 (same caveat)- 99%

I will have less than 10% of my buyers pay a handle that starts with a 7 for more than 6 months (90%)- note- we do 1 year buy down as I mentioned from the national average- so my dudes that are at 7.1 or 7.3 on a jumbo are bought down to 6.1 or 6.3 and they exit within that year or shortly thereafter. 

I think the range for the national average during this presidential term will trade between 4.3 and 7.3.

2025 I think the trading range for the national average will be 5.6-7.1. 

2026 I think it will be 4.75-6.25.

My crystal ball gets a little foggier after that.  

 

It just dawned on me why you are so adamant about the rate direction: you have clients that need to make a decision about buying or not now. 

I don’t think your scenarios are unreasonable, but more importantly if I were a homebuyer I definitely would not sit on the sidelines today, unless the current interest rates strained the finances so badly that it made life unworkable. Why? Because if inflation does run a little hot, it’s far better to own a house than rent one. It’s one of the better inflation hedges you can have. 

[Wulaw Horn 19069]

1 hour ago, Dbeasy said:

It just dawned on me why you are so adamant about the rate direction: you have clients that need to make a decision about buying or not now. 

I don’t think your scenarios are unreasonable, but more importantly if I were a homebuyer I definitely would not sit on the sidelines today, unless the current interest rates strained the finances so badly that it made life unworkable. Why? Because if inflation does run a little hot, it’s far better to own a house than rent one. It’s one of the better inflation hedges you can have. 

Exactly. And, you don’t need to have rates be perfect for a year or forever. You just need a trading range and dip into that area at a time you are paying attention (and I always pay attention for them). 
Best day to buy is always yesterday. Next best day is today. Once you are locked into a rate your life can only improve it can never get worse. It’s a fundamental lesson that buyers have a hard time internalizing because they are seldom making these kind of decisions.  

[UTPhil2006 3807]

1 hour ago, Wulaw Horn said:

Exactly. And, you don’t need to have rates be perfect for a year or forever. You just need a trading range and dip into that area at a time you are paying attention (and I always pay attention for them). 
Best day to buy is always yesterday. Next best day is today. Once you are locked into a rate your life can only improve it can never get worse. It’s a fundamental lesson that buyers have a hard time internalizing because they are seldom making these kind of decisions.  

It's the refinances where it gets tricky.