Why Skyrocketing Inflation Will Wreck The Real Estate Market (& What To Do About It Today)

There's a "four alarm fire" happening in the real estate industry today:

What is it?

Interest rates.

Interest rates are rising extremely rapidly. Now we knew coming into 2022 rates were gonna rise. The anticipation was from Mortgage Bankers Association, NAR, Fannie Mae and Freddie Mac, etc. The consensus was 3.7% by the end of 2022.

But what has happened?

First week in January, rates went to 3.12%. Second week in January, rates went to 3.45%.

Wow — that's almost a vertical rise!

So what's the messaging here?

The messaging for our buyers and sellers is get off the fence and get into the market.

Now, why are rates rising so quickly?

Well, we know that the Fed had told us already that they were gonna raise rates three times in 2022 to fight inflation because inflation's at a 50-year high and 7% was the latest number.

So their #1 goal was to fight inflation.

They also announced they were gonna stop buying mortgage-backed securities as of March.

But now the word on the street is not only are they gonna stop buying mortgage-backed securities, they're gonna start selling the mortgage-backed securities they're holding. That's causing investors to want higher yields, which is coming back to us and consumers having to pay higher interest rates.

So what does this all mean?

It means we've gotta get our clients into the market. If they're waiting for spring or summer, they're gonna regret it. They've gotta take advantage of these low rates.

Why?

Because rates have a far, far, far bigger impact on what they're gonna pay over the life of their home ownership cycle than the price that they pay.

The $5,000 or $10,000 price differential is meaningless when it comes to a quarter point difference in the amount of interest they're paying over the life of a loan. It's meaningless. You're talking about tens of thousands of dollars added to their bottom line costs. Especially if it goes up a half percent or a full point, it can really add up in their pocket books at the end of the day.

Second thing is for sellers:

We often don't think about this from a seller's perspective. But a seller who's been thinking about putting their home on the market may think that interest rates don't impact them that much. But they actually do.

Why?

Because higher interest rates put buying pressure into the market. In other words, it puts pricing pressure into the market. Buyers can't afford to pay higher prices if they can't finance those higher prices.

A lot of people that may have qualified for $400k or $500k suddenly will see -- because interest rates have risen -- only being able to qualify for $350k or $425k. And that will impact what sellers can command from buyers in the marketplace.

Massive, massive impacts. And it will start to ripple through the market very, very rapidly.

We don't want to be the last person in the market to turn off the lights. We want to be the person that's taking advantage of what's happening now.

We still have very low rates compared to the history of real estate, right? My first mortgage was 10.5% and I was happy to get it. So rates are still relatively low. But once they start to get over 4%, 4.5%, and start pushing 5%, we're gonna see some serious market changes occurring.

Encourage your clients to get off the fence and into the market today. And they're gonna save themselves lots and lots of money.

And on the seller's side, they're gonna make lots more money on their home's sale.

Hope that helps you today. Go out there and shake the money tree.

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