Opinion: Rates of 2% Aren’t Good for the Industry


Nest Seekers Chief Economist Erin Sykes says the market’s long-term health works best if rates stay in the 6% range. After a 2% flash sale ends, sellers just hunker down.

NEW YORK – While mortgage rates may have dipped slightly this week due to several bank failures, five consecutive weeks of increases have undone the temporary decrease that began last November. And with the Federal Reserve warning that rate increases will continue in an effort to curb inflation, many are concerned about what that means for home and commercial real estate sales.

But not everyone.

A year ago, mortgage interest rates were in the 2% to 3% range. But Nest Seekers International Chief Economist and Real Estate Wealth Adviser Erin Sykes says that economic scenario wasn’t necessarily good for the market.

“Real estate acquisition is a long-term play. Those who bought houses, kept them for two years and flipped them (when the rates were low) were absolutely illogical, and I don’t know if we’ll ever see that again,” she told Benzinga. “If you buy a home, you should hold onto it for five or 10 years. Six percent interest rates are a fair rate to pay for a 30-year loan. People have been spoiled. I hope never to see a 2% interest rate again.”

Sykes, who has appeared on national television programs on Fox Business, CNBC, CNN and the NBC Nightly News, admits that she is a “contrarian” in the industry. She also loves to quote Warren Buffett partner Charlie Munger, who famously said, “If you do what everyone else does, you’re going to get the same results that everyone else gets.”

Meanwhile, indicators like another healthy job report and comments from Federal Reserve Chair Jerome Powell this week that rates may go up higher this year than predicted mean that the Fed is not yet done with its pledge to curb inflation by raising interest rates, which in turn affects mortgage interest rate levels.

“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy. Overall, consumers are spending in sectors that are not interest rate-sensitive, such as travel and dining out,” Freddie Mac Chief Economist Sam Khater said. “However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory.”

Sykes said the frequent complaint about low inventory is overwrought.

“It depends where you live,” she said. “A lot of the ‘housing shortage’ line is manufactured, and people use that statistic too much.” She claims the inventory issue props up the belief that home prices, in general, should remain high and buyers should be coming into the market with offers that are between 5% and 20% less than the asking price.

“Anyone expecting to get the same price (for their home) as a year ago is naive. This is one of the best times to be a buyer. I don’t care what the interest rate is.”

© 2023 Benzinga.com – Benzinga does not provide investment advice. All rights reserved.

©Florida Realtors®

Source link