Explain Buying Opportunity to Realtors and Clients

All of us at MBS Highway wish you a happy, healthy, and successful New Year!

Stocks are lower and Mortgage Bonds are higher so far this morning.

Buying Opportunity

It’s been a challenging year in the mortgage/real estate industry. Interest rates did decline to 6% or just below, sparking a lot of purchase and refinance activity, which was a good thing to see, but it was too short lived. We do know, however, that when rates do come back down to the low 6’s, it will unlock move-up buyers and we will have a vibrant housing market with a lot of demand.

Since September, rates have shot back up above 7%. Many of your customers and Realtors’ customers may be waiting for rates to come down once again before purchasing.

It’s important to explain that they should have a contrarian mindset and even though it may seem like the worst time to buy, it can actually be to their benefit. Like Sir John Templeton famously said, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

When rates are higher, there is less competition. Additionally, during this time of year, we typically see home prices decline a bit, giving you a better deal on the property.

When rates do come back down next year, there will be a lot more demand – The National Association of Realtors estimates that for every 1% drop in rates there are 5 million more eligible buyers…not all of them will buy, but some will, making the tight inventory environment even tighter and pressuring prices higher. We are going to be releasing our 2025 forecast next week, where we break down why we think real estate will be strong next year.

Make sure you are doing a cost of waiting analysis for your customers and everyone one of your Realtor’s listings. The saying “marry the home and date the rate” can be effective, but only if you quantify it…otherwise it’s just a cute saying.

Here is an example on a $700,000 home, with 20% down. Many customers may believe it’s better to wait for rates to come down before purchasing, but they do not contemplate the impact of appreciation and having to borrow more if they wanted to keep the same LTV.

If a customer wanted to buy the home today with the1% higher rate, there would be a cost.  A 1% higher rate on a $700,000 home would be an additional $182 per month or $2,184 over the next year. And when rates come down, there is a cost of $3,500 to refinance.

The cost to date the rate is as follows:

1. Monthly cost: $182
2. Yearly cost: $2,184
3. Refi cost: $3,500
4. Total cost: $5,684

That may seem like a lot…but the benefit of buying the home today is that you will see 4.1% appreciation on that $700,000 home. That means you would gain $28,700 in appreciation over the next 12 months, and even when factoring in the costs of buying today, you would be better off by $23,016.

Here is how that breaks down:

1. Appreciation gain: $28,700
2. Cumulative monthly payment difference for buying now vs waiting: $2,184
3. Refi cost: $3,500
4. Total benefit: $23,016

News This Week

Monday: Pending Home Sales

Tuesday: Case Shiller Home Price Index, Market Closing at 2:00pm ET, No morning update

Wednesday: Markets Closed for New Year’s Holiday, No morning update

Thursday: Mortgage Applications, Initial Jobless Claims

Friday: ISM Manufacturing

Technical Analysis

Mortgage Bonds are moving higher and breaking above resistance at 100.43, which has been a tough ceiling. Bonds have more room to move higher until reaching 100.61, followed by a triple moving average ceiling.

The 10-year will be key – Yields have been in a nasty uptrend for a few weeks, but they have finally broken out under it. Yields are attempting to break under Fibonacci support at 4.588%, as well as the low from two days ago. If yields can confirm this, there is a clear path to 4.50%.

Bonds have been very oversold and yields very overbought and they are due for a reversal. Looking at the stochastic charts, Bonds are nearing a positive stochastic crossover, while yields are nearing a negative stochastic crossover. If these patterns are confirmed, it would portend higher MBS prices and lower yields ahead.