Why 'higher for longer' rates could drive buyers to the market this summer
The mortgage industry spent much of the last two years operating on a single premise that rates were coming down. Brokers planned around it. Buyers waited for it. The entire market oriented itself toward a future that looked a lot more affordable than the present.
That premise is now coming apart. Rates have moved in the wrong direction, inflation data keeps coming in hotter than expected, and Fed officials have started floating the idea of rate hikes to contain it. For buyers who were waiting, the picture looks very different from what it did a year ago.
Amir Nurani (pictured top), broker-owner at Left Coast Leaders, said today’s reality is much different than what some people predicted. He said the shift is already showing up in how buyers are thinking and behaving.
"For a very long time, the entire market, consumers, loan officers, everybody, was functioning on the premise that rates are going to be lower tomorrow than they are today," Nurani told Mortgage Professional America. "What we've seen happen is the exact opposite. Rates started coming down. All of a sudden, they're going back the other direction."
Why Nurani thinks 7% is coming
Even if geopolitical tensions ease soon, Nurani believes rates will end the year higher than they are today, and 7% is well within reach.
"I will come out on record and tell you that rates at the end of this year will be higher than they are today," he said. "I think that we could absolutely touch 7% again."
His reasoning starts with oil. When energy costs rise, the cost of moving everything goes with it: goods, food, and services. That feeds directly into inflation.
"One of the worst things you can do to adversely impact inflation is adversely impacting the cost of energy that's used to move goods around the country and around the world," Nurani said. "That's exactly what's happened right now. And so when you do that, when oil costs more, it costs more to move your toilet paper, more to move your eggs, more to move your vehicles, everything costs more to transport."
Nurani believes that too many people focus on the Federal Reserve and should instead be more focused on the bond market. When inflation rises, bond investors demand higher returns to maintain their real yield. The bond market tries to outpace inflation rather than reacting to it, Nurani said.
"You basically have this really vicious cycle happening right now where inflation is heating up, it's creating pressure in the bond market, up even ahead of where the current inflation is, because the trend is not looking so great," he said. "That problem is not going to stop anytime soon."
There is also a fiscal piece that Nurani said makes the picture worse. US tax revenue has fallen below the interest payments on the national debt. Nurani said the only way to service that debt is to print money, and printing money is inflationary.
"All signs point to the fact that rates are going to go up, not down," he said.
Fear of loss is creating urgency now
Buyers who started their home search when rates were half a point lower are now watching their approval amounts shrink in real time. The idea that waiting equals savings seems less likely, and that’s actually causing consumers to jump into the market. Nurani said that the shift is already pushing some buyers off the fence.
"The fear of loss is a far better motivator than the possibility of gain," Nurani said. "I think that as people were starting their home search and rates were half a percent lower before the war started, they saw the war start. They are now seeing that rates are going up. The whole notion of rates coming down guaranteed has come off the table. And I think it's created some acceleration in some homebuyers going, ‘Hey, let's just buy something now before rates go up even further.’"
While it is hard to find a positive spin on the current conditions, Nurani said that for those who are willing to jump off the sidelines and into a home, they can take advantage of inflation to build equity in their new home.
"I don't know that I would call it a silver lining," he said. "I think I would call it understanding the dynamics at play. If inflation is going to be heating up, that means everything is going to inflate, including assets, including housing. For those who have an accurate perception of what's happening right now, it becomes a compelling reason to get into a house if you don't already have one."
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