Rates and Real Estate: Where It Is and Where It's Going

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken, wealth advisor here at OmniStar Financial Group, and I'm very excited to introduce our guest for the show today, Aaron Koenig, mortgage broker at Atlantic Bay Mortgage Group. Aaron has been in the mortgage industry since 2015, and I'm very excited to get his thoughts on the current interest rate environment and the housing market and what he's seeing firsthand. Aaron, welcome.

I appreciate it, Dustin. It's a pleasure to be here. I know we've talked about doing this for a couple months now, so I'm glad to finally be up here, and with everything going on in the mortgage industry, this will be some good conversation today.

Yes, absolutely. And this is a great time to be filming, as the Fed has just raised rates again in December. We're not sure what they're going to do in January yet, but I'm very interested to hear your perspective.

Absolutely.

Atlantic Bay mortgage of LLC NMLS 72043 nmlsconsumeraccess.org is equal opportunity lender located at 600 Lynnhaven Parkway Suite 203 Virginia Beach Virginia 23452.

So to start off, Aaron, just in general, what have you been seeing in your industry in, say, 22 22 and then into 2023 with these rises in the interest rates from the Fed?

It's been a ride. As the Fed has raised their rates, we've seen mortgage rates increase as well. In 2022 we saw the highest increase in mortgage rates that we've seen in general within one year, and we definitely felt it. During the previous few years, we saw historically low mortgage rates, we were seeing very low inventory, a large pool of buyers, and it really just facilitated a strong seller's market. Home prices skyrocketed, which really forced a lot of buyers out of the market, because now homes are selling for well over asking price.

And over this past year, during 2022, with rates increasing the way they did, we're starting to see the market cool off quite a bit. We're seeing homes sit on the market now for weeks or even over a month, two months, where last year a home wasn't sit for more than a few days typically. And for what it is, I think that's really going to help a lot of the buyers that were priced out of the market last year. And even though home prices have slowed this year, they are still up, and we are still in a seller's market.

Here in Wilmington we're insulated a little bit in the market, being at the beach. Lots of people are moving here; it's a place you want to move to, and we're starting to see the market cool. So I'm sure it's cooling much more rapidly in other places of the country, but I'm interested to know, even here, have new mortgages slowed? Have refinances slowed? What are you seeing there?

Yeah. So mortgage applications are definitely down this year, and as far as refinances, they pretty much come to a stop, except for unique situations, like, let's say, a divorce, or that's the only way you can get the ex off of the loan, I would be through a refinance. We also see it occasionally for maybe debt consolidation. And here and there we are still seeing people pull out money on their homes to do renovations, if it makes sense for their situation.

So with mortgages and refinances slowing, are clients hesitant to purchase new homes?

I have seen some buyers who are a little hesitant to buy because of the interest rate, but I always remind them that they can always refinance in the future once rates do cool off. I try to explain, you want to think of this payment and these rates as temporary, because they will go down, and when rates do go down, we can refinance and you'll save some money. Even though home prices are not increasing like they did between 2020 and 2022, they are still up year over year, so at the end of the day it's still an increase.

Well, and it's very interesting as well, because you think of where interest rates are going and people feel like it's high, and yes, it is high compared to what it has been the last couple years, but if you actually look historically, right, at interest rates, it's actually still not a bad time.

Yeah, and if you look at interest rates historically over, let's say, the last 40 years, in the scheme of things we're still at a low.

What are you seeing as the biggest challenge that your clients specifically are facing right now?

So I would say really inventory is one of the main issues. At the end of the day, inventory is still low and we are still in a seller's market. I think we'll find some alleviation for our buyers and clients as more inventory hits the market. Builders are building; they didn't want to stop, but supply chain issues did throw some wrenches in everything. We're seeing new inventory coming on the market, so as that increases, that's really going to help a lot of the buyers that are just trying to enter the market at this point.

But I know specifically here in Wilmington there's not a lot of inventory. But what are you seeing in other parts of the state of North Carolina?

You'll see these little pockets here and there, maybe inventory is a little higher, but all said and done, inventory's low across the U.S. So that really is a driving factor in issues for buyers, and it was also the driving factor in what drove up home prices last year.

Interesting. So what about just the overall economy? Do you feel like the economy is starting to slow enough to bring back inflation? I know that's the Fed's goal of rising these rates, to slow home purchases, slow the economy down. Is it working?

I'd say it seems like we're starting to head in that direction. During the week before last, the jobs report showed strong new job creations, unemployment was low, but wages were lower than expected. This really can bring up a debate on: can inflation go away without causing too much harm to the jobs market? Time will tell, and let's hope so. Thursday, CPI inflation report came out last week. It came in as expected, that inflation is starting to slow. So we've now seen disinflation, not to be confused with deflation, which, all said and done, should help mortgage rates out.

So what's the difference there with disinflation and deflation?

So disinflation is we're not seeing a rise in inflation, where deflation would be a reduction in inflation. Things are getting better, but they're not quite where we need them to be.

So I know we talked about how clients are feeling, and they're certainly hesitant about what's going on, but do you feel like it's a good time for clients to finance a home?

So rates are always going to ebb and flow, and with inventory still being low, we're still going to see an increase in home values. It's not going to be like we saw in the past, but there's still going to be an increase. So at the end of the day, there's still equity to be built. And look at it this way: if rates were to increase from where they are right now, buyers are going to be glad that they locked in when they did. Well, if they go down in that same time frame, they can always refinance. Basically a win-win regardless.

But if you can build up equity, great. We always talk about in wealth management, the portfolio, right? Real estate needs to be a section of that portfolio. And there's never going to be a perfect time to buy. Maybe a couple years ago it was, if you could get something, but at that time too the prices were skyrocketing.

Absolutely. But rates were low.

But there is equity to be found, and that can really help the wealth management plan. What are your plans in your real estate portfolio?

So my wife and I, we really do plan on buying a new primary home this year, and that way we can start renting out our existing home. We've outgrown that place, so it's just time to move on. Even though rates are higher, I still think now is a good time, so we're going to make that decision, and probably make that soon. And again, if rates go down, we'll just refinance, so it's not that big of a deal. Ideally we would love to add a condo, probably in Carolina Beach, but any of the beach towns around here, that we can start doing short-term rentals. I just see that as such a great opportunity, and we're still in a market that can support those short-term rentals, so I say jump on that.

It's very interesting, because what you hear, what a lot of clients are thinking, is they're hesitant, they're not quite sure if now is the right time. But from someone like you in the industry, expanding your real estate portfolio even though rates may be going up, that really says a lot, and hopefully our viewers are getting a lot out of that. So as we wrap up here, I'd love to get your top takeaways of what you feel like buyers in the area, what should they know for Wilmington, North Carolina?

For one, Wilmington is a hot spot that's going to continue to grow whether we like it or not, so take that for what it is. And really keep in mind that real estate is one of the strongest hedges against inflation. When thinking about renting a home, look at that as a hundred percent interest. Even though rates are higher this year than they were last year, if you're renting, you're paying someone else's mortgage.

Now, one thing you'll hear a lot in my industry, especially over the last year or so, is "date the rate and marry the home." Rates are going to come down eventually, so if you can qualify for a home and it fits your budget, get the home.

I guess the last thing I'd like to leave you with is a quote from the National Association of Realtors on their 2023 forecast: "While 2022 may be remembered as a year of housing volatility, 2023 likely will become a year of long lost normalcy returning to the market. Mortgage rates are expected to stabilize while home sales and prices moderate after recent highs."

That's great information. It's a powerful quote, and I certainly appreciate you taking the time and sharing all this great information with us. It's always very interesting for me to hear the perspective of someone who's been in the industry for as long as you have, been successful like you have, especially in these challenging and uncertain times.

Absolutely.

Thanks to everyone who joined us. Please like, share, subscribe, all that good stuff; it really does make a difference for us. If this was helpful, please let me know. Put something in the comments if there's another professional that you would love to hear their insight on, whether it's something that's on your mind or something that you've been hearing people talk about. Let me know. I have a lot of those connections and alliances here at the firm, and we can certainly do more of these interviews if it's something that you like to hear. Thank you so much, and I'll talk to you soon.

I think Bay Mortgage Group LLC NMLS 72043 nmlsconsumeraccess.org is equal opportunity lender located at 600 Lynnhaven Parkway Suite 203 Virginia Beach Virginia 23452.