Morning! This is MF Lending - I hope you all had a wonderful weekend and a great Juneteenth and Father’s Day! We’re the fool-proof way to serve up mortgage and real estate market knowledge without any of the guesswork. So you’ll look like the smartest agent in the room.

Here’s what we’ve got for you today:

1. Why it may make sense to offer over asking 🤔

2. Rate Expectations & Impacts in June 🗺️

By the way, this article on Fed Coffee Corner: June Meeting is the most clicked link in this newsletter, you should check it out if you are interested.

Was this email forwarded to you? Subscribe to get it directly!

Nuwave Rates Today 📉

Why it may make sense to offer over asking 🤔

There is an extreme lack of inventory in the market today.

This is not only driving up prices as we detailed in previous editions, but also creating bidding wars on the few homes for sale.

According to a NAR study, a third of houses on the market sold over ask, and that number is expected to grow throughout the year.

This is all happening while interest rates are at the highest levels since pre-2008. As interest rates begin to fall, you can expect the competition to become even more fierce.

I decided to dig into the numbers to see if it is worth it for your clients to purchase something now, or wait for rates to subside - here is what I found.

-

Example: Asking Price - $500,000 | Down Payment (5%) - $25,000

In Davidson County, the historical average appreciation is 3.51%.

If the client purchases the home 15k over ask, they will break even on their investment in 15 months. Meaning - if the client plans on being the home for more than 15 months, they will make money on the deal - even bidding well over ask.

On top of that - let’s compare the cost of waiting a year or more as interest rates come down on the same home:

If this same client waited 1-yr to purchase this same home, it will cost them nearly $14,000 - including expected appreciation and paying down their loan.

Additionally, if rates come down under 6% (as we see in this example), there is no doubt the number of buyers in the market will increase. Clients will still have to offer over list price to purchase a home - potentially even higher than they would today.

All the “savings” clients would get from the $250 cheaper payment will go towards higher bids on homes - it will eat up all the benefits of the lower rates. On top of all that, the client who purchases a home today can refinance and get the same rate as the person who has waited a year or more.

If clients are on the fence to purchase something and are ok with the monthly payment - they should do it now and refinance in the future. If they plan on being there for more than 15 months - they will make money on the deal, even if they offer over asking price.

Rate Expectations & Impacts in June: PCE is the New Driver 🗺️

There is no doubt the FED has been moving the goalposts on the entire financial market. In one meeting they say they are focused on Core CPI, in the next they want to focus on Headline Inflation - the new song they sang in the June meeting was focused on Core PCE.

Core PCE (which strips out energy and food costs) appears to be the new preferred measure of inflation for the FED. They want to see this move towards 2% before they think about cutting rates in any meaningful way.

Since the beginning of June, interest rates have been in a holding pattern - as you can see in the chart below:

Expect this trend to continue over the next 10 days.

I would not expect any meaningful swings in either direction until June 30th, when the Core PCE figures for June are released.

This is great for preapproved buyers who are sick of their numbers and approval amounts changing. There should be some consistency in their numbers through the end of the month.

The Cul-de-Sac

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio