VIDEO: The Feds Raised Interest Rates
You may have heard that the Feds raised interest rates in March. That is true, but it doesn’t mean what you might think for mortgage interest rates.
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You’ve probably heard the word uttered by your favorite financial or lending professional: recession. Luckily, the next recession shouldn’t be anything like the last one.
I remember, I was processing mortgage loans when The Great Recession started. Every day we would come into work and check the Implode-O-Meter, a web site that cataloged lenders that had gone out of business. Home prices plummeted. Foreclosures and short sales became commonplace. Some days, there were peaceful demonstrations in the parking lot of the bank where I worked. Thankfully, one of the picketers – a previous customer - told everyone else that I was one of the “Good Guys.”
Now, economists are predicting another recession will soon be upon us. But I don’t think this one is going to be anything like the last one. Why? Supply and demand.
During the last recession, builders stopped building houses. There simply wasn’t any demand. So many tradespeople – carpenters, electricians, and plumbers - left the industry and got jobs somewhere else. Once the demand for new housing returned, there was nobody around to build. So building slowed and still – some 15 years later – has not caught up.
Compound that with the demographics of the Millennial generation. Millennials were typically born between 1981 and 1996, which makes them mid 20s to early 40s today – peak home buying years. The Millennial generation is also the biggest generation yet. There are more Millennials than there were Baby Boomers. And we don’t have enough houses to go around.
I think this will continue to drive a strong real estate market. Might prices decline a little bit in some areas? Maybe. During the Plague Years in particular, we saw large numbers of people moving to places where the covid restrictions were not as… well… restrictive. Places like Florida and Texas. Are those locations going to remain hot once the Plague Years have passed? Only time will tell.
But we saw such a huge increase in home values, that even if prices dropped by 10 or 20%, that’s not necessarily a bad thing. Homeowners currently have record amounts of equity.
If you’ll remember, before the Great Recession, mortgage lenders were engaged in some pretty risky lending practices. Loans with no down payment were common as were “stated income” loans. It was the Wild Wild West years of mortgage lending. And that is definitely not the case today. Today, most consumers have a down payment. They’re getting loans with fixed interest rates and payments. And anyone who has gotten a loan recently can confirm that we are going to verify your income by approximately 43,000 different methods. It’s fun.
So when we combine conservative lending practices with record amounts of equity, what do we get? I’ll tell you what we DON’T get… Foreclosures. If you’ve got $400,000 of equity in your house and you lose your job or you suddenly need to move to Poughkeepsie, are you going to let your house go back to the bank? No. You’re going to sell it and walk away with $400,000.
So… high demand, tons of equity, and responsible lending all mean that this next recession isn’t likely to look anything like the last one.
You can win when the market is changing. We can show you how. My contact information is on my web site. You can also text me at 360-301-7575.
My name is Emily Caryl Ingram. I lead a team of Mortgage Loan Specialists at New American Funding in Port Townsend, WA.
