Episode 61 - What you need to know about interest rates and the market!

Key Insights on Interest Rates & Market Trends

1. What’s Happening with Interest Rates?

• No one has a crystal ball, but trends suggest a potential drop to 5.75% or even 5.5%
• If rates drop:
  • Increased market activity – More buyers & sellers entering the market
  • Higher inventory levels – Homeowners selling due to financial pressures

2. The Impact of Consumer Debt

• Many people are carrying significant credit card debt (25–35% interest)
• Refinance activity is rising as homeowners look to consolidate debt
• Even moving from a 3% mortgage to 6.75% can still save homeowners $600–$800/month

3. Understanding Mortgage-Backed Securities (MBS) & Interest Rates

• Common misconception: Fed rate cuts do not directly lower mortgage rates
• True factor: Mortgage rates are tied to mortgage-backed securities (MBS)
• Key metric to watch: 10-year Treasury bond yield – It moves mortgage rates

4. Government Spending & Inflation’s Role

• Increased government debt = higher bond yields = higher mortgage rates
• Government reports on employment, inflation (CPI), and consumer data are often misleading
• Example: Job reports were recently adjusted down by 818,000 jobs, revealing the economy isn’t as strong as presented

5. The Role of Housing in Inflation Data

• Housing accounts for 46% of the Consumer Price Index (CPI)
• Inflation data is skewed due to outdated or incorrect rent estimates (Owner’s Equivalent Rent - OER)
• Actual inflation could be lower than reported, allowing for faster rate cuts

6. The "Mark to Market" Gold Adjustment & Its Impact

• Gold is at an all-time high (~$3,000/oz) – It signals inflation concerns
• The U.S. government values its gold reserves at $42/oz (from 1970s) instead of the current market rate
• If the Treasury adjusts gold reserves to market value, it could add nearly $1 trillion to U.S. finances
  • Less need to sell bonds = Lower mortgage rates
  • Potential drop to 5.25% or lower

7. What Real Estate Agents Should Do Now

• Monitor Treasury announcements about “Mark to Market” for gold
• Stay informed about CPI & Treasury yields
• Prepare for increased buyer activity if rates drop
• Reach out to past clients – Let them know how potential rate cuts could impact their decisions

Closing Thoughts

• Big takeaway: Watch for government spending cuts & Mark to Market discussions
• If rates drop, expect a hot market – be ready!
• Final reminder: If you list, you last!
• See you next week!

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Transcript

Hey, welcome fellow listing agents Bob Mangold, the listing coach here with this week's episode of the If You List You Last podcast. Now, as always, thanks for listening, sharing and downloading. Now today's podcast is going to be a little bit shorter than normal because I want to update you on what's going to happen in the interest rate market.

and what you should be paying attention to in any of the upcoming announcements and reports. So just a quick reminder, make sure you join the Real Estate Asset Advisor Facebook group so you can join in on the conversation, share your thoughts, comments, or questions on any of the topics I discuss right here on the podcast.

And as always, you can connect with me at www. HomeBossListingHub. com or  BobMangold. com. So grab a cup of coffee, settle in, and let's get to it. So first, let's start with. I don't have a crystal ball. I can't tell you what's going to happen today, tomorrow in the interest rate market, but I can give you a good idea based on charts, based on a lot of the things that are happening.

There's been some pretty big talk in the last 10 days or so, that could have a massive impact in a positive way on interest rates. And I think what's important for you to understand as an agent, is that all the studies which are based on interest rate fluctuations show that if interest rates drop down into the five and three quarters range, it's going to unleash a ton of activity in the real estate market.

And if it would get down into the five and a half percent range would open up a lot of inventory in the market. And the reason for that is people have been accruing debt at a fairly high rate accumulate a lot of debt, deleted their savings And at this point, the amount of interest that they're paying on that credit card debt, or their other debt is so extensive that it still makes sense for them to sell their home and buy a bigger home.

And I can tell you, you see a big influx in refinance activity right now for exactly that reason. And just understand that, hey, people come in, while they may be moving from say a 3 percent interest rate, To six and three quarters six and a half somewhere in that range They're still saving six seven eight hundred dollars a month even with the higher interest rate Because that credit card debt is sitting there 25 to 35 percent And trust me folks people are sitting on a lot of credit card debt if you go to the facebook page, about a week ago or so I posted the top three cities in the country carrying the most amount of debt and quite honestly, it was staggering And so people are struggling underneath that and the reality of it is now it's been about two and a half years Since you've seen a big jump in the interest rates and people are now acclimated to understanding hey they're not three percent anymore and they're probably not going to be three percent anymore.

The reality of it is, I don't see any of that happening. I don't know that will ever happen again in my lifetime. To be quite honest with you. Now, there's a lot of market forces that exist  that really determine the interest rate. And typically, everybody thinks when the Fed announces rate cuts that has some impact on interest rates.

And it has none. Technically, it has none. It may give people a little bit more confidence, but it has nothing to do with it. What actually affects interest rates are mortgage backed securities. They're mortgage bonds. That's all it is. And if people want, really it's institutions, it's not, the average American buying a mortgage backed security.

It tends to be hedge funds and money managers and things like that. If they want to get a stable rate of return, let's say over 30 years, then they can go out there and do a mortgage backed security right now and get about six and three quarters, right? So why would somebody wanna take and pay less or offer less?

The reality of it is what really caused interest rates to spike was the amount of government debt, the amount of government spending, which meant that we went into debt, which means our MA means our bonds are riskier, which means they have to pay more money. So the one that's most closely associated with mortgage interest rates and the one that you should watch.

is the 10 year Treasury. That's the benchmark for when you're going to see mortgage backed securities move. Because that's the main competitor with a mortgage backed bond versus getting a government bond, okay? Even though, you might see that the 10 year interest rate go down, doesn't necessarily mean mortgage interest rates are going to go down.

And it's the same with the Fed, right? Starting in September last year, the Fed lowered interest rates  On the fed fund rate is simply the interest rate that banks pay each other to borrow money overnight That's what the fed fund rate is has nothing to do with mortgages. Okay, but It is still competing for money, make no mistake about it.

And when we went into debt, in order to take and calm the market's nerves, the government started to have to raise what they would pay on a 10 year treasury. That impacted the mortgage backed security market because now they have to compete for the same money, right? Understand, money is always in competition.

with itself. Where can I get the highest rate? When you see the stock market just kickin butt, you'll see that the bonds have to raise, you'll see the prices raise, because they have to compete with that money. Make sense? So I want you to understand that. This government debt is really what created this.

The second thing, if you've listened to the podcast for any length of time, you know how I feel about the reports that the government provides us on employment and consumer price index and inflation and everything else. And it's complete and utter BS, right? The jobs numbers is complete BS. If you doubt it just ask yourself, why did they up, Adjust  the third quarter jobs by eight hundred and eighteen thousand meaning they had eight hundred and eighteen thousand jobs less It's the way for the politicians to make it sound good that they're actually doing a good job And they're creating jobs and they're not they weren't and of the jobs that were created The majority of them were government jobs.

It was a way for the last administration to fool people into thinking that the economy was better than what it was, and it's not. And so as you hear more about job cuts and things like that, believe it or not, that's actually better for interest rates. Because that all impacts inflation.

The next thing that you're going to hear is the Consumer Price Index. So as I record this, it's going to be released tomorrow, and it happens every month, so it's not a big deal. Folks, again, that number is so skewed. It's ridiculous. Let me just give you an example. And it's just, it's important for you to understand as an agent.

So you can have intelligent conversations with your clients, because remember, you're always looking for ways to differentiate yourself. And the number one differentiator is your knowledge. So what's going on right now is you're going to have the core PCI. It's the price the consumer price index that gets released.

It's the monitor of inflation.  So what happens is, The housing number accounts for 46 percent of that number. So when you hear the consumer price index, it went up or it went down. Just understand housing makes up almost 50 percent of that number. Now the numbers in housing are completely skewed because they're using numbers from Six months ago when rates may or may not or rents may or may not have been going up and housing prices may or may not have gone up, but the number one thing driving  the housing number is  owner's equivalent rent. 

So you'll hear it as OER and what that means is they actually call up like 500 people randomly and say, hey, if you could rent your house,  how much could you rent it for? Folks, imagine they're just calling the regular consumer, has no idea what rent rates are in their neighborhood or things like that. Just like a Zillow or anything else, or the listing price of a house, there always tends to be overinflated.

The OER is overinflated because somebody goes, I could rent it for 2, 000.  When in reality, maybe they could get 400. Usually skews the housing number. And when I say usually, it means by 3 to 4 tenths of 1%. So if tomorrow they release the PCI  And it comes in at let's say 2. 9.  Just understand if owner's equivalent rent was actually calculated Or I don't understand why there needs to be any reason for it to even be in there to be quite honest with you It's a completely made up number But you actually could be in the two and a half 2.

6 range, maybe 2. 4. If the government's target  is 2 that gets us so much closer to that it's ridiculous, which means there can be some easing of the interest rates. So when you see that tomorrow or in the future,  just understand that's going to have an impact. But the real reason I want to talk about this today is because I want you to pay attention over the next, I don't know, it might be month, might be six weeks.

If you follow anything in the stock market or the investment market, you'll know that gold is at an all time high. What does gold have to do with interest rates? Gold is a hedge against inflation. When gold prices rise, they think that inflation is going to go up. So one of the reasons that has a huge impact is that can governments cut spending?

Of course they can. And they need to, and it's happening. But the reality of it is we need to open up assets. And so I want you to pay attention for the term mark to market.  And you're going to hear the treasury secretary has already said he's open to doing this. What that means is we have, obviously we have gold reserves, however many ounces of it, whatever the government holds when we went off the gold standard in the mid seventies, the price of gold was about 42 they have never.

Adjusted our inventory in the value of it for the market value of gold Which right now is just short of 3, 000 If we do an adjustment on the mark meaning the 42 we move it up to the market rate of about 2, 900 2950 whatever it is the market value of gold today We would add another 900 billion dollars to the treasury,  almost a trillion dollars, by simply accounting for our assets in 2025 dollars, not 1972 dollars.

Why we would do it that way, I don't know. Other countries don't do it that way. We do so think of it this way. It would be like you saying I can't refinance my house because I bought it at 50, 000 in 1972 and it's still only worth 50, 000 wouldn't make any sense would it? That's what we do with gold if we take and do a mark to market price adjustment We would add almost a trillion dollars to the Treasury, which means we don't have to sell as many bonds 10 year Treasury, 2 year Treasuries, 30 year Treasuries We don't have to sell as many of them Meaning we the interest on those we could pay less interest because we don't need it to fund the government  I know it gets confusing But if you just think about it, you got an asset that you priced at 42 It's worth 3 000.

If you made that adjustment you have access to a lot more capital Then you would have had  meaning I don't have to sell bonds, which is nothing more than debt bonds are used to pay the debt So the more that we continue to spend and throw away government money  The more bonds they have to sell which the more bonds they sell Means they have to raise the price to get more people to buy them You had a trillion dollars to our Treasury.

You don't have to do that anymore. At least it not at that rate anyway And you'll see interest rates substantially fall quickly. Be paying attention when you hear anything about mark to market on gold and that the Treasury is looking at it or doing it. That would be a huge impact on our interest rates.

More so than anything else that the Treasury could do. would have an impact on interest rates, like doing a mark to market adjustment. So be paying attention to that because folks, if we do that, you could see the interest rates. Now you could see that at five and a half. You could even see it at five and a quarter.

If that happens, just be prepared. Now you're going to unleash a lot of activity in the housing market. People have adjusted to the higher rates. They get it. That's the way it is again. I don't see us going into the three or fours. It's certainly not in my lifetime. I'll never say never, but I'd been around a long time before they went that low and I think it's going to be that long again.

But if you start hearing, the more the government cuts waste, right? I don't care what you feel politically or how you feel about it politically. We can't continue to spend 2, 3, 4 trillion dollars more than we bring in every year. The only way to do that is to cut the spending that we have. If you do that'll help inflation. 

It means we don't have to sell as many bonds to pay for it. Which means there's more competition for them, which means we can lower the rate.  The mark to market adjustment on gold would be a huge impact. And what I can tell you folks is if you hear that happens, You need to be paying attention and you need to make a an adjustment and start calling those past clients Letting them know what's going on with interest rates Again, will you see competition for housing?

You definitely will,  but that's going to be the way it is. And until we solve that housing shortage, folks, that's a whole nother problem. But I wanted to give you an update on what's going on with all this activity in the interest rate side of it. It's not stuff that most agents pay attention to, I get it, but it's critical for you to plan your business because if that would happen this year, You're gonna have a whole lot better year than you had last year.

So I hope that helps. I know it can be a little bit confusing. It's a lot to digest. Listen to this twice, but just be listening for anything that talks about the treasury doing a mark to market adjustment on the price of gold. And trust me, you're going to be happy with interest rates. So hope that helps. 

I know it's a little bit confusing, but I believe it's important for you as a real estate agent to know and understand how this stuff works. So with that, we'll talk to you next week and remember, if you list, you last.