(click above image for video commentary)
Last month I said, “It’s all about the rentals”. It actually created quite a stir among some colleagues and clients. I said this, because that’s where the concentration of deals is actually happening. One particular colleague said, “you sold us out”, as he interpreted my message as saying, you should be renting. Note: everyone’s circumstances are unique and the decision to rent or buy is very singular and personal. That said, the oft contrarian investing approach, to go in the opposite direction of the herd, yields rewards.
For a prolonged period of time now, perhaps the longest of my 26 year career, high interest rates have repulsed buyers, and hence deal volume, with many making the decision to rent instead. Naturally, the supply and demand dynamic for both sectors reveals contrasting stress and opportunity and the “stress”, right now, is on the rental market. Last summer it hit all-time highs and is likely to surpass that level this summer. So where does that leave opportunity?…in the sale market, where competition is tepid at best.
I must say that the herd, is a reluctant one, as they’re all dying to buy…just waiting for that opportunity…waiting for those clouds to clear. At the moment, the clouds are high interest and the uncertainty of an election. The latter of these has historically been much-ado-about-nothing. Every election cycle deal volume slows right up to the election, and then immediately afterwards, just picks up and goes on as if nothing ever happened; so it should be of little concern.
Interest rates, on the other hand, are the real factors which have anesthetized the sale market. The moment there’s even a mild downward move in rates, deal volume will noticeably accelerate; the charts below show this precisely. In late December of last year the Fed hinted at a change in approach, signaling the likelihood of several rate cuts in 2024, five to be exact. Since then, economically, it’s been good news, bad news, good news, bad news…making it impossible to identify a turning point and no cuts have materialized.
Interest Rates – 30 Year Jumbo
Liquidity Pace Chart – showing the resulting bump from the above Fed signal.
Liquidity Pace Chart has fallen -7.3% from the past month and has fallen -15.6% from this time last year.
Chart Courtesy: UrbanDigs
Regardless what happened at the beginning of the year reveals the acute relationship between rates and deal volume. The mere hint of a rate drop prompted a notable bump in activity in the following two months. Note: this volume increased without an actual move from the Fed; it was merely their messaging that had affected sentiment enough to open the spigot. Naturally as their prediction waned, deal volume once again flattened. So again, the relationship between the two is acute.
Rates will eventually come down and the MOMENT it does the floodgates will crack further. If (when) we get even half a point below where we are now, the flow will be measurable. When we get to a full point lower, it will be a frenzy. If someone is interested in buying, they would be well served getting ahead of that. If not, you will be competing with the herd, making securing a property fundamentally more difficult. Not to mention that there’ll be upward pressure on prices. So again…consider the moment. And to my dear colleague, do you see the forest?…or the trees? I love you buddy.
I always say: 1) Anyone interested in buying or selling, should be rolling up their sleeves to determine whether the time is right to sell or if there’s a home/investment property out there for them; and 2) Who represents you matters…your best investment is often in the broker you choose; find someone with experience, who you feel you can trust.
