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Lowering or raising rates maybe a 2-edged sword

Real Estate Broker/Owner with Turn Key Real Estate 31RA0874656


All Things Real Estate: Lowering or increasing rates may be a 2-edged sword
Well, we are now into 2024 and interest rates have come down from the high of 8%+ in 2023, and now according to https://WWW.NerdWallet.com, 30-year fixed rates w/full doc loans are vacillating in and around 7%-7.9% APR depending on one’s income, credit and debt/income ratios as well as the lender.

Fifteen-year rates w/full doc loans are hovering around a low of 6%+ APR.  Many of the expert economists are not 100% confident that they will go down and some even contemplate that they could even still increase, depending on the inflation numbers.

One thing is for sure,  our government says inflation has increased and is hovering around 3.9% in February; affected mainly by consumer spending, supply-chain shortages, and I believe even unemployment.  Their numbers don’t convey to me the entire story.

As I have mentioned in previous columns, the Fed inflation formula is the prices of goods and services over time.  As inflation increases so does the CPI, and the value of your dollar (and our U.S. currency) decreases, enabling one to purchase fewer goods and services for the same dollar amount.

The cost of living increases for most, as you need more dollars to buy the same amount of goods and services. This can hamstring the economy by depressing purchasing capability.

However, too low inflation is also unacceptable, because it’s an impediment and restriction on economic growth. More important the current inflation numbers are not representative of and do not include or account for the cost of energy, food, or shelter, which can have a more negative effect on the true inflation numbers, if included.

The Fed says that they are too volatile to be included; but how can we trust and judge actual inflation that we are all experiencing if they are not included?

If we knew the truth, we just might slow down are conspicuous consumption spending habits. More important 70% of our economy is consumer spending; so the government doesn’t want us to stop spending, but possibly to curtail the number of dollars spent.

But isn’t that how inflation can be reduced, by balancing somewhat less spending and decreasing the number of new jobs needed to a more manageable level?  However, you wouldn’t know this by the current credit card debt increasing month over month and the 353,000 jobs that were just created in January.

The next time bomb to drop will be all the mortgages due for refinancing on office buildings throughout the U.S.

The rates probably will double, possibly triple, depending on the debt/income of the properties and the risk to the banks.  The cap rates, profit, and values are being severely affected, due to the Pandemic that caused the exiting of employees to settle into remote and hybrid work environments.

Values have continued tumbling and there will be many more fire sales.  Paying off their current humongous mortgages will be very challenging, if not impossible! Many Hedge Funds and REITS (real estate investment trusts) have been handing over their non-performing properties back to their lenders and have been snatched up at severely discounted prices.

Refinancing just might be moot to consider as there still would be negative cash flow and losses.

Not sure how so many economists, no-it-alls, and prognosticators keep talking about a soft landing! I do hope they are correct, but I am far from agreeing and accepting their statements observing what is continuing to occur in the commercial market. The jury is out and we’ll all see what happens over the next 12-24 months.

If the Fed chair, Jerome Powell does initiate and approve a reduction, how many will there be and what will the total percentage be during 2024?

Even if rates were to go down to 5%, which I seriously doubt, the average renter who would want to buy, may still be shut out of the market, due to the still ever-increasing and high prices of homes and extremely low housing inventory; especially on Long Island as well as in other areas throughout the country.

Unless demand subsides and rates stay the same, I predict that local inventory may take 5-10 years to catch up with the current and future demand for housing. We lack approximately 5-6 million homes to satisfy current demand from those who are entering the market yearly and are capable of purchasing.

For more information: https://WWW.ipropertymanagement.com and https://WWW.statista.com    Only those who are bringing home a substantial income whether it be as a high-paying executive or self-employed entrepreneur, or possible 2-3 wage, salary or income earners, will be able to save enough for a much larger down payment.

Only those families will be able to pay the monthly mortgage, taxes, and expenses and be able to purchase a home, multi-family, HOA, condo, or coop.

Unfortunately, everyone else will either be a tenant (possibly for life) or be living with family. Sadly, those 43.2 million students burdened with their substantial debt approaching $1.7 trillion and private student debt of $130.28 billion, are two additional groups that will probably be forever renters unless they can pay down or pay off their obligations. For more information: https://www.educationdata.org

The other issue and major dilemma that needs to be addressed is that if and when rates are lowered what effect will there be on reinvigorating and increasing inflation?

Consumers may again go on a continued spending spree with their credit cards adding to even higher more substantial and unsustainable debt levels.  On the flip side, lower rates will allow more qualified individuals and families to buy a home.

According to https://WWW.attomdata.com, the premier go-to source for premium property data shows that Lis Pens (pre-foreclosures) and foreclosures have been spiking from December 2023 through January 2024.

So I do not think we are out of the woods by a long shot.  It’s a real catch-22, damned if we do lower or increase rates and damned if we don’t.

P.S. I am having a contest.  Whoever guesses correctly, how many interest rate reductions and the total percentage reduced will win a dinner with my wife and me and a surprise bonus.

The contest will end on March 31 and the final drawing will be on Dec. 28

The first correct answer picked will be the winner! To be qualified, you must send your answers to Phil@TurnKeyRealEstate.Com with your legal 1st  and last name, cell, and email by midnight on 3/31/24.

Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. For a 15-minute consultation, value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com or via https://WWW.Li-RealEstate.Com 

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Have you entered my contest yet?  Whoever provides the correct answer in how many interest rate reductions or possible increases plus the total percentage reduced or increased will be the winner.  Your reward will be a dinner with my wife and I and a special surprise bonus!  The contest was going to end on 3/31/24, but due to the overwhelming response, we have extended our contest until 4/15/24 at 11:59 PM as the absolute final date to provide the additional time for all to enter as the final drawing will be on 12/28/24.

Hoping you, your Family, Friends, and business associates have a Healthier, Safer, Happier, and more Lucrative 2024!

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Comments (5)

Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Feb 24, 2024 03:17 AM
Philip A. Raices

Hey Richard, thanks for complimenting and I hope you have a fun, relaxing, and lucrative day and weekend too!


Feb 24, 2024 03:10 PM
Edward Gilmartin
CRE - Boston, MA

I can see rate normalization over next decade . Fed will cut rates a couple times bringing Fed funds to no less than 4.5% . We can have a healthy economy with 2% inflation and mortgage rates around 6%.

Feb 24, 2024 03:21 AM
Philip A. Raices

Hey Edwin,  I am not yet convinced that we will realistically see a 2% inflation rate.  More critical are the prices that people will have to pay for homes if rates are no lower than 6%.  This tragic situation will only allow those who have earned enough money to either pay cash, or be able, due to their current equity in their home, or a considerably larger down payment (not concerned with the interest rate at the time of purchase) for their starter move-up or dream home.  This will have a dramatic and unfortunate effect on those who will never be able to afford to purchase and in turn be able to build their long-term wealth.  One's primary residence has generally been the most valuable path in creating long-term wealth.  Unless we see moderations or major price reductions and inventory increases over the next 5-10 years I see a society of renters for the long run. Proper and substantial education for consumers will be the antidote and solution.  I am not sure this is what is in the cards going forward and whether our government or individual consumers will step up to the plate and care enough about themselves or their families to pursue their next level of financial security. Those who will do the right thing will succeed for the benefit and future of themselves and their heirs and those who could have, should have, or would have but didn't, will be left behind.  This is why rental properties will be the optimum best and safest investment for the future, besides a business and the stock market.  The reason I feel this way is that our government doesn't tell us the whole truth.  They produce numbers that make no logical sense and are not reflective of what is truly and accurately going on in our economy.  Unfortunately, they cannot, because telling us the truth will potentially curb people's purchasing, and as I said in my current and previous columns, consumer spending is 70% of our economy.  The real conundrum is that they haven't or prefer not to figure out how to convey and educate our population on how to balance spending and saving which would be much more beneficial in the long run in building long-term wealth.  The reality is, that they want most people to be poor and not better off, and/or more comfortable financially   Who would then wash our restaurant dishes, work at Target, KMart, our supermarkets,  pick our crops via HV1 visas, etc?  FDR when President, back in 1932 created our educational system and deemed it more necessary that we needed to create more workers, not entrepreneurs, otherwise, we wouldn't have our basic needs and services satisfied for our consumer population (welcome to Capitalism 201), and those who could and would be the ultimate consumers and conspicuous spenders that make up our economy.  It is a sad commentary on how those at the top could care less about the 30+% on the bottom and this is why a Great Society like the U.S. and others throughout history as well as Great Empires like the UK have consistently failed or gone down in stature.  Pick up the book by Ray Dalio, Billionaire founder @ 27, of the remarkably successful Hedge Fund Bridgewater Associate who wrote the book, "Principles" and his most recent critical dissertation "The New World Order" that he penned a few years ago.  This provides very accurate and concise historical information and precedents on how things were and how they will always be concerning who rules the world over time and how they get into that position.  the average age of a Great Empire like the UK and the U.S.A. as a great society is approximately 250 years according to Ray Dalio's extensive research in writing his book.  We are 247 1/2 years young and have 2 1/2 years left to be either more mediocre on the world stage, go down into oblivion, or raise our expectations and aspirations to excel and continue to be the world's leader, reserve currency, and Democratic savior.  Only time will tell over the next few years!  G_D help us!



Feb 24, 2024 03:31 PM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Thanks for sharing, make it a great Saturday and enjoy your


Bill Salvatore, Realtor- Arizona Elite Properties

Feb 24, 2024 05:27 AM
Philip A. Raices

Hey Bill, I am enjoying my weekend with my kids and grandchildren and cannot wait til my son and daughter-in-law have their new son on approximately, March 22 as our name continues for the next 80-100 years if we don't implode or blow ourselves up!  I see why Alon Muskk, Jeff Bezos, and Richard Branson are emphatic on going to Mars because I believe they feel we are failing on Mother Earth as we have continued to pollute, change our climate, and become a divisive human race, constantly doing everything against each other, not caring one iota about anyone or anything as this will test our survival going forward..

Feb 24, 2024 04:25 PM
John Juarez
The Medford Real Estate Team - Fremont, CA

If rates do go down to a more attractive level...whatever the heck that is...more buyers will jump off of the fence and try to buy. With the inventory continuing to be so low, that will create a even greater buying frenzy and  more bidding, pushing prices even higher.

Feb 24, 2024 06:29 PM
Philip A. Raices

Hey John you are 1000% spot on!  However, that is only 1 of several dilemmas that we could be facing over the next 12-36 months!  Lowering the rates too much will only exacerbate the return of greater inflation, making the cost of goods and services spike, once again.  We are in demand-pull inflation (or what could be called cost-push inflation, where certain in-demand goods and service prices are still increasing because the raw cost of those goods and services from the distributor and/or manufacturer continues to increase and demand continues), where demand is making prices increase, partially due to the increase in some people's wages and income, which is slowly but surely being used up and prices, unfortunately, aren't decreasing.  But then again, increasing interest rates, which is still a possibility on the reverse side, will potentially slow and cool off our economy causing deflation, which in turn would cause layoffs, greater foreclosures, and probably decreases in home prices.  Finally, stagflation could turn into high inflation and low growth, similar to what occurred in the70's.  Our current global environment is very similar to what had happened and the similarities are staring us right in the face, but very few are cognizant and aware of what is and will be happening going forward.  Things just might change in 2024-2025, so be aware, be careful, and watch where your money is invested especially outside of the real estate sector!  Lastly, Jerome Powell has his work cut out for himself, and unfortunately, the levels to which he lowered rates and did not step in soon enough to begin slow increases (and not 11 increases!),  I believe will come back to haunt him and be on his epitat for many years to come.

Feb 24, 2024 08:09 PM
Patricia Feager, MBA, CRS, GRI,MRP
Selling Homes Changing Lives

Philip A. Raices - Here are my ah ha's, thanks to you!

Their numbers don’t convey to me the entire story.


As the value of your dollar (and our U.S. currency) decreases, enabling one to purchase fewer goods and services for the same dollar amount.


you need more dollars to buy the same amount of goods and services.


the current inflation numbers are not representative of and do not include or account for the cost of energy, food, or shelter, which can have a more negative effect on the true inflation numbers, if included.


Not sure how so many economists, no-it-alls, and prognosticators keep talking about a soft landing! I do hope they are correct, but I am far from agreeing and accepting their statements observing what is continuing to occur in the commercial market. 


Even if rates were to go down to 5%, which I seriously doubt, the average renter who would want to buy, may still be shut out of the market, due to the still ever-increasing and high prices of homes and extremely low housing inventory.


I predict that local inventory may take 5-10 years to catch up with the current and future demand for housing. We lack approximately 5-6 million homes to satisfy current demand from those who are entering the market yearly.


Unfortunately, everyone else will either be a tenant (possibly for life) or be living with family.


As for my market, just about every day I am seeing vacated retail and restaurants with a sign on the front door, "closed due to rent not being paid." This really hurts when local businesses can't survive. It can turn a thriving community into a ghost town or a place that can potentially be hit with vandalism and crime. Seniors on fixed incomes are being hit so hard many can't afford 3 meals a day or the basic necessities. It is hardest on those who live alone and don't have family members. I am seeing grocery prices on continuous rise. Just out of curiosity, I stop in the same store whether I need groceries or not only to see the same thing, less produce and food to buy, more empty shelves, what is available has gone up in 24 hours or less. I don't see happy children playing outdoors anymore. Nor do I see courteous people in public places. There are many grouchy people who won't speak up to anyone other than a stranger and they let that stranger have it with rudeness or snarky remarks. Restaurant food is not good or tasty. Doctor visits are more expensive, and physicians don't smile or care for patients anymore. It's a dog-eat-dog world now and everyone is on edge. Angry people are what I notice the most. 

Feb 25, 2024 07:18 AM
Philip A. Raices

GM Patricia,

Did you read my replies to Edward and John?  If not, please read them.  We are in a huge mess in the U.S. as well as around the world.  Yes, stores in many locations are closing, partially due to Amazon and all the other internet businesses.  However, believe it or not, 80+% of consumers are still purchasing via brick-and-mortar stores as per my research.  However, due to so many purchasing online, there are not enough dollars coming in to pay the rent, electricity, heat, labor, etc. in stores, for many to stay afloat.  Moreover, many are still doing the same thing expecting something miraculous and magical will happen to elevate their businesses, and we call that "business insanity."  Pivoting was the name of the game years ago especially when the COVID-19 pandemic hit us on March 22, 2020, in the U.S.A.  Complaining was the word of the day back then, instead of letting the market affect and dictate how your business would do, one needed to change their strategies not only to survive but to excel and become a leaner,  lucrative, and profitable entity.  Lastly, all that money they handed out was a 2-edged sword too, as so many sat back and did nothing but "Woe is me" mentality and never sat down to change the way they were doing business.  It was a wake-up call for so many business people.  Moreover, our government never created a check and balance in the way they provided monies and over 400 billion was stolen by foreign entities without any recourse to recover those dollars.  Those that are being caught is a drop in the bucket.  Lastly, we kept our interest rates way too low for way too long (see my comments to Edward and John.)

Feb 25, 2024 09:11 AM