With rates dropping close to 3-year lows, the stock market continually breaking records, and a trade war with China persisting, it's hard to stay up-to-date through all of the talking heads and jargon.
Luckily, our CFO Jeremy Abig, MBA, CPA, sat with us to break everything down, and give us his two-cents on the current market.
Q: Broad question, but overall how is the economy holding up?
A: My opinion is that, generally speaking, the U.S. economy is doing pretty well. It's still growing despite the volatility in the market. Just recently, retail sales came out above expectations, and generally the U.S. consumer is doing pretty well. It’s a little misleading in the volatility of the market right now, but the economy is still doing good. The market is more focused on the future, as opposed to today.
Q: Compared to the last few years, would now be a good time to refinance?
A: YES! It’s a great time to refi - the best time in the last 3 years. No one can predict where interest rates will go in the future, so a consumer should look at their numbers and talk to their loan officers about how much they can save.
For many people it's a great time. Maybe rates will go lower, but as of today we’re within a quarter-point of the all time low in the 10-year treasury. For anyone saying “They might go a lot lower", they might! But that’s a bold prediction. The odds of rates going up, and missing out on the current lows, are better at the moment.
Q: Do you think the economy will stay strong, gradually slow down, or is it too hard to tell?
A: It’s hard to say. I think that in the U.S., for the next 6-12 months, our economy will continue doing pretty well. The trade deal with China, obviously, is the most important thing to the market right now. Depending on when and if that gets resolved, that’s a big wild card. If it doesn’t get resolved and hangs on longer, that’s a negative. If it gets resolved sooner, that’s a positive. So that’s something that can tilt not just the U.S. but the global economy.
I’m not going out on a limb here to say that, historically, in an election year the economy does pretty well. I don’t think we’re going to see anything different this time. Post-election it becomes a bigger question mark: what’s going on with trade, the rest of the world, etc. Does the wind come out of our current sails, or does it continue?
Q: How does the trade war with China affect interest rates and housing prices, if at all?
A: It’s definitely impacting interest rates because the trade war, mainly the tariffs, slow down both economies. At this point, it seems that China is taking a much larger impact versus the U.S. as far as what’s happening to their growth versus ours, but it drags down everyone. Slower growth drags down interest rates. So absolutely, as this war drags on and gets busier, we’ll see it impact interest rates.
As far as housing in the U.S. goes, it's not having a massive effect. I think that there are long-term concerns. If this goes on, it could cause cost to build to increase--from a materials standpoint--and definitely commercial real estate from the steel perspective. There may be a large increase in cost and lack of supply there, but it won't have as large of an impact on the residential side. There’s already a shortage of housing in the country, so that could negatively affect our supply of new homes. I would say that any impact it's having on housing is balanced by these lower interest rates, which is of course making homes more affordable. Lack of availability and affordability is still the biggest challenge to the housing industry.
Q: Is now a good time to purchase?
A: I would say, even more emphatically, that now is a great time to purchase. I mean, I think generally speaking that it’s just about always a good time to get real estate and purchase a home.
Sure we’ve seen bubbles in the past, and certain markets are getting frothy, but making a statement on the whole U.S. market: now is a GREAT time. Prices are poised to rise faster than the rate of inflation. A lot of millennials are waiting to buy a home, townhouse, or condo over the next decade, so we’ll see prices continue to rise. And not just prices in most urban markets, but rural markets across the country too. If you factor in where rates are right now, it makes now a perfect time. I think if you wait, you risk prices and interest rates being higher--a double whammy that’ll result in being able to afford a lot less house.
Q: How are iBuyers currently disrupting the housing market? Is it sustainable? Is there anything customers should know?
A: Yes, iBuyers are absolutely disrupting the market. It’s still very early, maybe the 1st inning of that game. There’s a lot of capital investment going on. I think the jury is out on sustainability, and there's something to the model. It’s too early to say “This is going to become the predominant model,” way too early to say that, but there is a place for it.
I think there will be a consolidation for all the entrances coming in, but I certainly think there's room for 1 or 2 well-run iBuyers in the market. It’s a question of “how big can they grow their share; how much can be done with tech instead of boots on the ground?"
There is absolutely stuff [for customers] to look out for. Whenever there’s some product that's brand new, and you're an early adopter, I do think you have to be very careful. I won’t tell anyone to not use an iBuyer, it’s good to consider. I’d just say to look at the fine details, small numbers, and if you’re not a financial person then have a financial expert look over it with you. A lot of companies have large fees and expenses worked in that you may not notice right away. It’s a good option for a lot of people, but be cautious with them for now.
Q: Is there any substance to fears of a recession?
A: Yes, there certainly is. There is a lot of talk about it. You know, we’ve had a few inversions of yield curves. We had one last week that drew lots of attention. You can’t argue with the fact that these yield curves have been a predictor in the past, but you also can’t argue that it’s just a set of numbers and that’s all it is. You don’t want to talk yourself into a self-fulfilling prophecy of "Oh because the numbers did that, we should stop spending our money because there's going to be a recession soon.”
There is substance and I think that, honestly, from my perspective, the biggest reason is we’re in the biggest expansion in recorded U.S. history right now. It can’t go on forever, you know? So you have that fear. We have the fact that, again, the stock market has been on an incredible bull market for the last decade as well. There’s no question that growth is slowing globally, which will impact us eventually.
We know it's coming at some point in time, and some fears are warranted, but most experts agree it should be a more mild recession--not like the "great recession" 10 years ago. We have no bubbles like there were at that time. I think fear is a strong word, and I think that it’s a little bit much for people to be freaking out over.
The Bottom Line
Rates are around their 3-year lows, the economy is at its' peak for the last decade, and we're trading blows in a trade war. The talking-heads on TV may be fearful of a recession, but the current economy is chugging-on strongly, and consumers should not live their daily financial-lives in fear.
Now is one of the best times in years to refinance your mortgage. Compare today's rates, and see how much you could be saving every month.