(00:04) [Music] Welcome to the Dearwood Realty YouTube channel. I’m John Schink, founder and managing broker of Dearwood Realty. Look, the Fed is in a bad spot, right? The more expensive it is to borrow, the more it hurts the economy in different ways. So, we have a situation where if we keep raising rates, mortgages become difficult. Right now, we’re over 8% on a 30-year fixed as of today. But it also affects other things like credit cards, auto loans, bank savings. It’s really a mess. This has been a problem that’s been going on for a long time. Some argue that this is still the same problem from back in the housing crisis of 2008-2009. And that’s where you get this, “It’s just like 2008.” I don’t really see it being the same, but I do understand where people are coming from when they say that the debt problem was never fixed back then and it’s just continued to get out of control.

(01:33) So, I wanted to go over just an article that I saw and just kind of see how it all sets up in the Fed and see what goes on. So here we go, let me put it here. This was on CNBC, there’s a link to the article in the description, and we’re just going to go through it. It said, “The Federal Reserve may not hike interest rates next week, but consumers are unlikely to feel any relief.” And that’s just right. Look, if you want to buy a house this week, it doesn’t matter if the Fed changes the rates, it’s still going to be over 8%. I mean, it’s really not a good situation if you want to see a bunch of new construction come to market. New homes coming to market at 8% rates isn’t going to do it for you. Those houses are going to be very expensive if they do get built.

(02:19) So, I’ll just go through this little part here. It starts off, “Here’s a breakdown of how the central bank’s rate hike cycle has affected household expenses and savings.” So, credit cards, can you believe your credit card is over 20% on the APR? It says, “After the previous rate hikes, the average credit card rate is now more than 20%, an all-time high. Further, with most people feeling strained by higher prices, balances are higher, and more cardholders are carrying debt from month to month. Even without a rate hike, APRs may continue to rise,” according to Matt Schulz, who’s the chief credit analyst at Lending Tree. “The truth is that today’s credit card rates are the highest they’ve been in decades, and they’re almost certainly going to keep creeping higher in the next few months.” So, this all pins back to affordability. If you’re trying to save up for a house and you have to pay more for your credit card, that’s less money that you can use to save for that house.

(03:19) Mortgage rates are at 8%. So, although 15 and 30-year mortgage rates are fixed and tied to treasury yields in the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves. And that’s good, at least they’re starting to admit the inflation of house prices is ridiculous. I mean, at least you see it now. I did a video a couple of weeks back about people not talking about inflation of the house prices. They’re talking about affordability, but we’re not talking about just the massive inflation in the cost of the house. It says, “The average rate for a 30-year fixed-rate mortgage is up to 8%, the highest in 23 years.” And you know, it should lock things up pretty good, and it kind of has. Rates have risen two full percentage points since 2023 alone, said Sam Khater, who’s Freddie Mac’s Chief Economist. “Purchase activity has slowed to a virtual standstill. Affordability remains a significant hurdle for many, and the only way to address it is lower rates and a greater inventory.” Well, lower rates will help with affordability, but I don’t think that this, in, I don’t think inventory is coming online, just a massive amount of inventory as far as new construction.

(04:28) Now, you can argue the short-term rental market’s going to eat it, but we haven’t really seen a tremendous amount of foreclosures and things like that. Auto loan rates up to 7%. Look, I don’t know if you’ve noticed, but auto loans are just ridiculous. My lender and I have been talking about it, and the amount of people that have loans for autos over $1,000 a month is just, it will make you sick. It says, “Even though auto loans are fixed, payments are getting bigger because car prices are rising along with the interest rates on new loans, pushing up costs for motorists. The average rate on a 5-year new car loan is 7.62%, the highest in 16 years.” So that’s not great.

(05:12) And then we have finally federal student loans are now at 5.5%. And I did want to go over this because the student loan repayment thing is definitely an issue, but then you have what people are getting on their new loans. It says, “Federal loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s move. But undergraduate students who take out new direct federal student loans are now paying 5.5%, up from 4.99% in the 2022-2023 Academic Year and 3.73% in 2021-2022.” That’s not great, right? I mean, it’s just, I’ve never figured out how it’s okay to saddle an 18-year-old with a tremendous amount of debt for college, and then it’s quite possible that the degree they get doesn’t even pay for the, doesn’t even, the starting salary doesn’t even help, doesn’t even isn’t even enough to pay for a repayment of the loan. So, I just, it makes me sick.

(06:14) But it seems like anything that the Fed, anything that the government touches, right, just gets more expensive. And I think definitely in education, you see, and then finally, deposit rates at some banks are up to 5%. Now, this is something that’s always been a little bit sneaky to me. I don’t understand how if the Fed’s raising the rates, how come our savings accounts aren’t following suit? And I don’t understand why that’s not the case. It says, “However, high-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in nearly two decades. Moving your money to a high-yield savings account is the easiest money you could ever, or you’re ever going to make.” So, that’s something that I thought should have happened long ago.

(07:08) And that’s something that, when people say, like, you know, when you talk about stock valuations, you say, “Well, if I can just earn six or 7% in treasuries, why would I want to put my money in the stock market?” I don’t have all the answers, but I’m just saying, man, people are looking at the Fed, and they’re saying the Fed is the problem. And it’s not being helped by the fact that the National Association of Realtors, National Association of Home Builders, and the Mortgage Bankers Association wrote that letter to the Fed that says, “Please give us some clarity on what you plan to do with rates.” And that just makes it look like the Fed is not being responsive to trade organizations. But at the same time, the Fed’s mandate is to look for, or to keep the, well, to avoid booms and busts in the economy. But when have they ever done that?

(08:10) So anyway, I just think it’s a very fascinating issue. We’ve got people looking to the Fed and saying, “Cut rates, cut rates.” But if they cut rates, inflation continues to get out of hand. They unleashed the inflation monster, and it’s not going to go back in the bottle. It’s just not, not without severe treatment. And so that’s what we’re getting. I don’t know what’s going to happen. I know people that were buying houses this past summer were saying, “You know what, I don’t mind if we pay extra for a couple of months. As soon as the Fed cuts rates, we’ll be fine.” As a real estate agent, I was a little bit uncomfortable with that because we never know when the Fed’s going to make changes. And when the Fed does have to lower rates, it’s usually because they’ve jacked up the economy, right? So that’s not something you should like when you buy a house at the very top of the market. You should not be counting on the Fed to come in and fix the problem because you’re already in it. You’ve got a problem.

(09:19) So, yeah, it’ll be interesting to see what the Fed does. My own, look, my own, just a guy with a brokerage in the middle of the suburbs of St. Louis, Missouri, I don’t think the Fed’s going to do anything. I think the Fed will say, “You know, hey, the employment looks strong,” which we could argue that it wasn’t so strong because people are having to get two jobs just to make ends meet. But, you know, they could say, “Hey, very easily, we’re not going to do anything with the rate. We’re just going to see how our rate increases have done over the past two years, and we’re just going to hold.” And even then, that’s not going to solve the problem in housing right now. The rate lock-in effect, which if you’ve never seen one of my videos, it’s basically, look, people that, like 80% of the country, has rates at like between two and 3% on their mortgage, okay? They don’t want to sell their house. They’re fine.

(10:16) So, the only people selling their house are death, divorce, which is horrible inventory, no offense. Like, if you’ve lived in a house for 40 years and never done anything to it, it’s kind of dated, and these are the things we get. So then, because there’s no other real good inventory, people bid up these big houses, and so it’s just a bad situation right now. And the theory is, is that if we can control inflation, it’ll keep from being a worse situation in the future. Who knows what’s going to happen? That’s all I have for you today. Thank you for watching, thank you for listening, and I’ll catch you in the next one.