Interest rates are finally headed in the direction we want, and we couldn’t be more thrilled to be back with another Real Estate post today! 

If you’ve missed any of our previous posts where we discuss the buying process, what to look for, how to find an agent, {and so much more}, be sure to check them out here as you start your real estate journey. If you’re in the market now or will be in the future, we want to provide you with valuable information for navigating the real estate market so we can help you make that next purchase. 

But first, let’s keep all the legal guys and gals happy. The purpose of this series is to explore the housing market and what I believe we can expect from it. Please understand we’re not offering personal financial advice. We highly encourage you to talk to your local Realtor and licensed financial adviser. {Side note: If you need help finding a good local Realtor, let us know no matter where you live. We have helped several people with this not-so-little task!}

I started sharing the pattern I thought the housing market was moving in about a year ago. You can read about it here. I followed up with some predictions here and even checked in on those predictions here. I have been urging you to take action sooner rather than later if you plan on buying a home. 

I want to discuss three significant events in recent weeks. These are not in order of importance or in chronological order. But first, I want to elaborate on the role of the FED in everything. For our discussion and to simplify everything, you must understand that the FED has two mandates. 1) to keep inflation near the preferred target of 2% year over year, and 2) to maintain maximum employment. Understanding this is vital in understanding where we’re headed.

Now for the three events.

1. First, interest rates dropped. The FED cut rates for the second consecutive meeting, this time by 25 basis points. In their summary of economic projections, they led us to believe they would drop the benchmark rate by another 25 basis points at the December meeting and another full point(or 100 basis points) next year. This clearly establishes a trend and that we are in quantitative easing or a rate-cutting cycle.

This indicates that the FED believes inflation has been tamed because its only tool to fight inflation is higher interest rates.

2. Second, the jobs data came in lower than expected, jobs data meaning the number of people who are unemployed and looking for work. The FED’s second mandate is to maintain maximum employment, and judging by the current labor data, it could be losing this battle.

So, what causes issues in the labor market? A lack of growth. If the economy or businesses are not expanding or growing, then the outcome is a lack of hiring or even downsizing in current employment, thus increasing the number of unemployed people. Several things can cause this lack of growth, but the FED only has one thing to fight this problem—lower interest rates. Lower rates allow companies to borrow money more cheaply, which in turn allows them to expand, and expansion creates jobs. Creating jobs gives you more favorable labor market data

This data, along with the belief that the FED has achieved the 2% target, lends credence to the idea that the FED might be even more aggressive than the 100 basis point cut projected for next year.

3. Third, a new US president was elected. This is not a political statement or a statement of approval or disapproval, {and I’m hesitant to discuss it}, but I have to for a complete discussion. So let’s all act like adults, not frat boys cheering for our football team.

As we consider the effect of a new administration on monetary and economic policy, I want to remind you that markets will do what markets will do. If you have not familiarized yourself with the 18.5-year real estate cycle, please hear the drum I have been beating for so long and learn about it. I will say with 100% confidence that it did not matter one way or the other who won; the market was going to do what the market was going to do. So, let’s not pick teams but stay focused on making the best decisions in the housing market.

What can change is the height of the peak and the low of the valley. So, we want to examine whether the new administration will affect the market and what we can do with the cards we are dealt. I believe the new administration will cause a higher peak, and the markets seem to agree, as we are already seeing the effects. Markets are reaching new all-time highs in every asset class, with still lots of room to run.

However, I also believe that with the higher high comes a bigger correction. I don’t know how steep the climb to the peak will be. In other words, will it take 18 months or 8 months? 

What I do know is that prices are set to climb drastically. And the longer you wait, the riskier it becomes for your equity in your home.

We’re already set up for rates to be cut as the FED has telegraphed its move, but now we know that the labor market is weakening, which will cause the FED to be more aggressive. These two things will cause mortgage rates to become more affordable, encouraging more people to get off the sidelines and back into the housing market. Couple this with the 18.5-year real estate cycle and an administration that will be perceived as having a significant focus on being growth-oriented by the markets, and the market is simply sitting on a launch pad waiting to take off.

So, I am even more convinced now than when I started this discussion that if you want to buy a home, do it sooner rather than later. Every sign points to a very heated market headed our way, followed by a rather significant correction.

We hope this helps shed some light on the situation at hand, and that you feel like you have a little more knowledge today. As always, let us know if you have any questions!

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Real Estate is an interesting beast, and having an agent who can pull the curtains back and help navigate what will most likely be the biggest purchase of your life is essential. As they say, you don’t know what you don’t know, and that’s where a good realtor comes in. {If you need help in hiring a Realtor, check out our post here.}

If you’re in the Middle Tennessee area, I’d love to meet you and help you find the perfect home! You can sign up here so we can start the process. And even if you aren’t in Middle Tennessee, contact us here and we will take care of you no matter where you live. There is no reason to go it alone. Check out more of what we do + our portfolio here.