What’s Saving Us From 7%+ Mortgage Rates?

The gang from Sell for 1 Percent unpacks why the 10-year bond yield is at a three to four-year high, pushing mortgage rates toward that critical 7% threshold. While rates are up, the most interesting factor is the mortgage spread—the gap between the bond yield and your rate—which is so compressed right now it’s single-handedly keeping rates in the upper sixes instead of the upper sevens. For Columbus homebuyers, this creates an opportunity: with 52% of local listings doing price cuts, buyers can negotiate a good price now and plan to refinance if rates ever drop again.

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Full Transcript

Hey there everyone, Dave Barlow here with the gang from Sell for 1 Percent. Scent. Scent.

On a bright and sunshiny, well somewhat sunshiny, Wednesday, September 2nd. It’s already September for gosh sakes. I, it was just like yesterday was January 1st and we were party poppers and everybody’s celebrating the new year and now we’re nine months later.

So I read an article here, oh I know, a couple months ago. It said that the reason time moves faster for you and me, Rich, is because we’ve already experienced a lot of this stuff. So your mind just doesn’t process it.

So like a little kid like Jack, who’s home from school today, sick. Everything’s a first-time experience. So their mind is processing all this information and that’s what makes time seem like it stands still, runs slower.

And so the more experiences you have in your life, the faster time goes by. I yearn for the days. Well time must be going very fast for you then.

It is, it’s flying by. Like I say, nine months, it really seems like January 1st was just a couple weeks ago. So anyways, we’re here to talk about..

I’m experiencing this intro for the first time, which must be why it’s taking so long. Well, I’m trying to drag some conversation out of you too. You’re both, mom’s the word.

I ain’t taking your bait, old boy. Come on, talk to me boy, talk to me. Rich, there’s all kinds of crazy things going on in the world right now.

Just a quick look at the news this morning. Looks like there’s four or five economies around the world that are on the brink of disaster. The yen is about ready to give up.

It’s just, it’s craziness. The 10-year… Accelerate.

Your favorite barometer, the 10-year bond is at its highest in three or four years. And so is there any reason to go out and buy a house, Rich? Well, yeah. Well, first of all, I’ve experienced all this before, but it’s been a while since I’ve seen..

Yeah. Time was moving slower then. That’s right.

Yeah. Time was moving slower when the bond yields were moving higher. But we are seeing rising bond yields.

I mean, we were over 4.8 yesterday. I think we settled in at 4.82. We’re now at 4.78.

In context, for those who haven’t watched before, back earlier this year, we were at 3.99. So we’re getting close to… We’re over three quarters of a point higher than what we were.

And interest rates for mortgages are three quarters to a point higher than what they were earlier this year. We were quoting 5.99. Now we’re quoting 6.8, 6.9.

It’s easy to be over 7% on your mortgage right now, given certain factors like the wrong credit scores or loan-to-value. So we’re on a march towards 7%. The 10-year is on a march towards a 5% hand-on the 10-year yield.

And we have inflation roaring. We have royal prices. We have the streets open, the streets closed.

Bonds are dropping. Bonds are not dropping. But the bottom line is, houses are still selling in Columbus, Ohio.

You can still buy a house for a good price. And if you wait until all this dies down, as we’ve said before, and the rates drop down into fours or fives, we’re going to have a massive influx of buyers. Those prices are going to be inflated.

So to answer your question, Dave, now is a good time to buy a house. You can always refinance if rates drop. And if rates don’t ever drop, then you’re getting the best rate that you’re going to get for your lifetime.

So it would still be a good deal. Yeah, I don’t think they’re ever going to come down to the fours. I think that people need to quit thinking that way.

And let’s dad saying, the world’s economy crashes and we end up in a Great Depression. Well, then maybe we’ll get into the fours. But short of disaster or the job market breaking, I think 6.5 needs to become the new normal for people.

And then things will start to take back off a little bit. I have a question for you, both of you older gentlemen that have seen this, been there, done this. If we are at a three, four year high for the 10 year yield, why are interest rates not up at 8% where they were three, four years ago? Why are we still under seven? Because we still, as we’ve said, there’s not a direct correlation and it’s always a forward tamp down a little bit.

And there’s still some optimism we can get this under control. So it’s really what the market perceives is what is going to happen in the next six, eight, nine months. And whether these rates can modulate or not, who knows.

But it is always, it’s not just a direct correlation that this is the number, this is the rate. There’s a little bit of market sentiment that goes into it as well. I’ll add to that is that I think it was 2008 or 9 when we started into the foreclosure crisis that I thought interest rates at that time were going to go high because of the Euro.

A lot of people were moving money out of the United States bond market into the Euro bond. And all of a sudden, Greece had a monetary problem. And people then became afraid of the Euro and then started moving money back into the US bond market.

And it’s interesting. I mean, there’s so many things that go into what happens in the world. But Rich, you were talking last week that a lot of people weren’t happy with the US bond market.

And so they were pulling money out of the US bond market and starting to move it elsewhere. And then this week, we’re getting word that the Japanese market is possibly in trouble. And it’s like, it’s interesting.

It starts the outflow, and then there’s economic disaster somewhere. And then people are like, oh, well, yeah, let’s get back into the US bond market. And what a lot of people really don’t realize, I mean, yeah, it’s loosely tied to the 10-year bond, your mortgage rates, but there is mortgage-backed bond that people buy.

And again, I’ve always subscribed that when the stock market is doing well, people pull money out of the bond market. And then the bond rates have to go up. So we’re at 4.81% to try to entice people to put money into the bond market.

And as soon as the stock market starts a downhill slide, you’ll see money flow back into the bonds, and we’ll see the bond market absorb it, and then the rates will go down. So there’s your long-winded response from my side of the aisle. Good, sir.

The answer I was looking for was mortgage spreads. That floats all the time. And they’re seriously compressed right now, which is what’s helping us keep things down.

I don’t know if I’m going to get an answer quick enough, but right now, I’m looking to see if mortgage spreads were the same as three, four years ago, what the predicted 30-year mortgage would be right now. The economist I listen to always says, hug a mortgage spread, buy a mortgage spread of beer. It is what is saving us right now.

It says if this is based on what mortgage spreads were three to four years ago, we would be in the upper sevens right now versus where we are in the upper sixes. So they say that the spreads three, four years ago were three to 4% above the market? It says that in late 2023, the mortgage spread was around 2.9 to 3.1%. Today, they’re 2.09%.

And I guess what’s normal is around 1.88%. I was going to say, I think for a long time, me and Rich were kind of used to seeing one to one and a half percent. And it was pretty much you could look at whatever the Fed rate was.

If it’s 4%, then the mortgage rates were going to be around 5% to five and a quarter thereabouts. And so that number has gotten bigger too. And the weird part about that, and Rich, you can attest to this, you guys’ cut as far as mortgage brokers has gotten smaller.

Oh, yeah. Our yields on our loans are very compressed. We’re not making the spreads that we were years ago.

And it’s very difficult for me to pay closing costs for clients now as opposed to before. We used to offer a free refinance. We had a nice spread.

We would pay all of your fees on your refinance. Well, two things have happened. The spreads have compressed, as you said, and the fees on closing a loan have just completely..

A credit report now is $360. That’s hard for people to digest. If I want to close your mortgage and run a credit report, it is now $360 to get a credit report.

It used to be $15. It’s worse than our McChicken math from last week. Yeah.

Or top-tier gas. Yeah. Or HOAs.

I mean, there’s the crap of the century. These HOAs that are charging $400 to transfer to the new buyer. I mean, it’s like, yeah.

Well, not only that, Dave. When a person buys a condominium, we have to get a condominium questionnaire filled out. It used to be free.

I remember when it was free, we just called the HOA, hey, we need this. Then they started charging $15 for it. And I remember that specifically, like some property management companies, the $15 and they wouldn’t take your credit card, so I’d have to get in my car and drive over to the office and give them the $15.

And they wouldn’t hand me the report because the internet really wasn’t… You weren’t emailing things like you are now. So it was $15.

Now it’s easily $500 or $600 to get the information we need from an HOA. Isn’t that crazy? And the funny part is, is that these are the members and the members are the owners of the condos in the complex that are voting these things in. They have no idea.

No one even knows. I sold homes to presidents and they didn’t realize. It used to be that you got the information from the HOA president.

Now they all have these property management companies, real property management, all the other ones. And they’re the ones, I suspect, that are raising these fees and charging these fees. Well, yeah.

It’s an easy… They’re getting a cut. It’s an easy..

And then the website like WiseDocs, they get their cut. I mean, that’s the best software ever invented. And then the..

The guy just sit there and make money. The seller shows up to closing and they’re like, what’s this $350 fee to the HOA? Well, you voted for it. Well, I didn’t vote for this.

Well, somebody on your board voted for it because this just didn’t come out of thin air. Well, and Fannie Mae could fix this by saying, okay… Let’s not get the government involved.

You guys think 6% realtors are bad. Just imagine being WiseDocs, condoserts.com. And I’ll remind everybody that because of government regulations, all these fees increase exponentially.

Appraisal fees used to be $125. Now it’s $450. And if there’s anything unusual, you’re $600, $700.

The credit report fees, the condo fees, but yet the lender, us, we cannot put $1 on a closing statement. It wasn’t already disclosed. Everything has to be accounted for to the Fannie with us.

Well, that’s because all you mortgage guys created the foreclosure crisis. Yeah, right. That’s..

We were definitely the fall guys. Yeah. So you had the..

What was it? What was that? Bernie, whatever his name was, made up. No, it’s Bernie… Dodd-Frank, the Dodd-Frank bill that forced the banks to give loans to everybody if you had a heart rate.

And then you had the foreclosure crisis as a result. And then they came back with their financial rules that wasn’t our fault as a government. It was your fault, Mr.

Lender, and we’re going to stick it to you. And it’s all our fault. Dodd-Frank was after..

You’re thinking of something different that was before that helped cause it. Well, the Dodd-Frank Act was the response to the… Yes.

That was the 2010 response, right? Correct. And yeah. And remember the talking point, the big moniker was too big to fail.

And so what have all these regulators… They wanted to prevent the too big to fail, like where we had Lehman Brothers and whatnot, who all failed and brought down the markets. And they wanted to avoid that.

They wanted no more big lenders. And so they created these regulations. And what have the regulations done? They’ve gotten rid of all the small guys, the equitable mortgages and whatnot.

And it’s all big companies now running the world. And that’s what’s crazy. And when we saw it during COVID, I tell people all the time, they’ll ask me about..

I think that the stuff that… And I used to enjoy it, being Chicken Little, waiting for the sky to fall. And I have people all the time ask me, when do you think prices are going to correct or this is going to happen? It’s like, I waited 10, 15 years for that to happen.

And when it should have happened, which was COVID, they printed $9 trillion. And so you talk about too big to fail, that’s what the whole economy seems to be where… And Rich has talked about it on here, his conspiracies that, well, if Wall Street starts to feel it, then that’s when the bailout comes.

And it would be… It’s true. You can look back and you’ll see that.

Are they… Will they really just let the whole system collapse? I guess we’ll find out when dad’s predicted… Because it’s your prediction, right? That the Japanese yen is going to collapse the global markets.

My prediction? I never made that prediction. I think you did. I think dad did.

And so according to dad’s prediction… How you see the bond… And that happened.

How you see the US bond market start to suffer a little bit and all of a sudden there’s a… There’s an issue in the Euro or there’s an issue in Japan or they’ve been talking about issues in Russia and China and all these other places. So yeah, we’ll see.

But I always fall back to Ronald Reagan and what was his seven scariest words? I’m from the government and I’m here to help. Yeah. What could go wrong? Nothing.

Nothing. So… Well, what do you see in there in the real estate market, Mr.

Jade Bomb? We have 10,000 listings active yet? No, we bought right down below 6,000. We’re like 59 and 80 or something. So things are kind of back and forth.

And we’re in this typical seasonal decline right now where a lot of people’s focus became getting the kids back into school, getting back into your normal routines of life. We got Labor Day coming up, Buckeyes play. So once we get past Labor Day, hoping to see it pick back up a little bit, but I felt it on my listings, I felt it slow down a little bit.

And before the meeting, I was looking at the pending home sale charts. And there was this little uptick, mid-August, where pendings kind of skyrocketed. And then they came back down to their normal seasonal trends.

And it’s like, yeah, I felt that in my… Antidotally in my business, whereas like that middle of August, I probably sold five, six, seven listings all in one week. And then it’s like before that it was cooling off and after that it was cooling off.

So I had to start digging into those trends. Why mid-August? Because it looked like the last couple of years, mid-August did that, where there was like a little spike and then it continues on its decline. The interesting thing, kind of what I’m banking on this year is midterms, hoping that some sanity can come back into the marketplace.

But the last like three or four years, when December has been a great month and most sellers think, oh, well, springtime and summertime are the best times to sell. And when you adjust for interest rates, December has been great. And that’s usually because interest rates are lower in the wintertime and then they kind of pick up in the springtime.

And so things kind of balance out these trends. So if rates keep going up, it’s not going to be the best winter. If things kind of settle in, again, you’ve got midterms coming up, they start talking common sense.

Well, then hopefully rates will kind of settle. We get to like six and a half and it becomes a new normal for buyers entering the market, I think will be okay. If they pop over seven, it’ll be interesting to see how the market reacts.

I still think that in Columbus, we’re going to still sell a decent amount of houses. So we’ll see what happens here. But market’s been cooling a little bit.

Seems that prices have plateaued for a while. Average days on market is still up in the 70s in the Columbus metro. And that I looked briefly, it looked the same for the Cleveland area, Dayton, Cincinnati, all the major metros in Ohio.

About 70 days on average, and that median is around 40. We are over 50% of listings doing price cuts, 52%. And so a lot of people are cutting price is the other major trend in the marketplace.

And we’ve seen that here for a little bit. I mean, it’s been up above a thousand price cuts for some time now. And so I’m just, I think that 7% is kind of a, is a line in the sand.

I think if rates go above 7%, you’re going to see a real stall in the real estate market. I think the new norm, like you said, Jay, is somewhere in the sixes, whether it’s low sixes, mid sixes, six and three quarter. But I think you get up towards 6.99 and that kind of stuff, or start quoting above seven, that 7% is going to be a number that it’s a mental thing.

And we’ve talked about that here before. It’s like, what’s the difference between six and three quarters and 7% in your house payment? Right. Not a whole lot, but mentally, like you’re saying, it’s a total gain.

Yeah. And you can look at the new builds. I mean, the builders hate this stuff.

Once it gets above six and three quarters, 6.8, things slow. And, you know, I mean, really 6.5 would be a great place to kind of like have this middle ground at. Six and three quarters, I think it’s starting to push it.

You get to 6.8 or higher, you know, I think that things that you feel it, that we all feel it. Yeah. It’s just that.

Builders, residential, everybody. That mental thing. You know, it’s like right now we go back to my old gasoline analysis with top tier gas, but- Oh no, there we go.

I was coming up Sawmill Parkway yesterday and there’s a Circle K right there just south of Powell Road and 3.39 a gallon. That’s an anomaly. That must be some crappy gas.

It’s not top tier. I don’t know what they, it must be like, you know, from the old roller dog machine juices or something that they’re slipping in there, but- Did you go fill up? I always do when I see a low one, like I don’t do a fill up. I do three quarters.

Well, no, he did. Yeah. He didn’t want to fill up because he put too much weight on his car.

But at 3.39, that’s worth a fill up because over there in your neck of the woods, Jay, I was over there in Hilliard yesterday and, you know, coming up Roberts Road, all those guys were at 3.69 and then, you know, a little further up Sawmill Parkway, you get up to Home Road and Selden Scene and, you know, the gas is at 3.89, 3.99. So I know that Circle K was kind of a, you know, like I said, an anomaly of sorts, but once it goes over $4, I think that’s where you start hearing people bitch, you know? No, I don’t disagree. And gas right now is weird too because there are big variables.

I forget where I, it was in Hilliard, I forget what day it was. I drove by one, it was 4.12. And then I went by one and it was, you know, 3.89.

Then I saw one at 3.69 and I was like, well, I better go fill up the wife’s van before school this week, you know, and get that 3.69 and price while I can. So when you said 3.30, but I haven’t seen it in the 3.70s in a while. So that does feel nice to see it, gas come down just before, according to dad again, that the whole economy crashes and collapses.

Oh boy. You know, well, some people drive around and entertain themselves with listening to the radio, listening to podcasts. Dave drives around entertaining himself, looking at gas prices on all the different stores that he passes.

No, I drive around and I’ve got a dash cam. I’ve got to get it hooked up because, I mean, there’s so many rules of the road. You know, you get the guy that’s driving 12 miles an hour in the left lane.

It’s like, you’re in the fast lane. You got to go fast. You know, you can’t be driving slow.

And so there’s certain rules. So if somebody’s wearing a hat, don’t get in behind them. That normally means they’re old and nothing against the old people, but if they got their hat on, then you’re in for trouble.

Well, that’s why they’re going 12 because time’s moving really fast for those people. They feel like they’re going 180. They’re trying to slow the time down.

It’s going to be you soon. You better relax. I know I’m headed that way.

I just developed one here on Monday. I got in behind a pick-em-up truck, a very nice pick-em-up truck. You know, those things are selling for like a hundred grand now or something crazy.

And the guy’s going 12 miles an hour, you know, in a 45. And I’m exaggerating a little bit, but it’s like, if you’re going to go slow, pull over, get into the slow lane. He’s driving with his window down and his arm out the window.

And so new rule, anybody that’s driving with their arm out the window means that they’re on a drive. Don’t get behind them. So I have to keep adding things to my rules of the road.

I could do a whole YouTube channel just on rules of the road and example after example, after example. Well, the poor guy with the hat could just be bald and he’s trying to keep the sun from his hat. Right.

And then you got, you know, Dave back there with his circle K gas talking about his rules that he makes up on the fly. Well, they’re just certain things, you know, don’t get in behind it. And the rule of now you guys will notice when you have a slow driver and they’re wearing a hat.

So it’s kind of like, you know, when you buy the new car, Jay, how many people, you know, are now driving the car that you just bought, you know, three months ago? You didn’t know. I get that. Yeah.

He just didn’t really notice it. You guys will notice people driving with hats and they’re all slow drivers, unless the hat’s backwards. Then if the hat’s backwards, then that’s usually a young kid and he’s driving a little recklessly.

And if he has a hat on and window down and his arm out the window, yeah. Forget about it. Yeah.

Well, and that’s in his arm out the window has a cigarette in it. Then they’re, they like to live on the edge. Not to mention it’s a joint.

Yeah. Yeah. Well, the joint, they’re going to be going slow.

Most of the time I’m driving by the person, their windows are all up and they’re vaping. And it’s like this big cloud in the car. It’s like, how in the world do you see out the car? That’s your, uh, that’s the modern version of your, what were those guys? Dave’s not here, man.

Cheek and Chong. Yeah. That’s the modern Cheech and Chong.

Yeah. Yeah. It was just like, put a window down, get behind the car.

It smells like a skunk. They’re going to be driving slow. There you go.

Thinking they’re driving with that road. I did take a picture. I don’t know if I sent it to you or not, Jay.

A guy was driving an orange, one of the new Corvettes. Yeah. You sent that with the gloves on his hand and the guys were in driving gloves.

Yeah. It was like that dude’s ready to go. Yeah.

Let me put my driving gloves on the drive to Kroger to pick up my Starbucks. Hey, whatever floats your boat, that guy was ready to go. I was like, he’s living his best life.

Yeah. Yeah. Yeah.

So, all right, fellows. Well, I think everything in the world is, uh, trying to get balanced a little bit here. And, uh, so we’ll see what happens here over the weekend.

I think the big catalyst, as you mentioned, Jay, is going to be, uh, midterms. Um, I think they’re trying to get this war in Iran figured out one way or the other. Uh, they’re, they’re running out of what they call a runway.

Uh, I mean, what a self-inflicted wound that is. Yeah. It’s, it’s coming very fast.

And, you know, with gas price, even with gas prices that, you know, three 89, you know, three 99, I think people are still, you know, not happy with that. So they got to get that part figured out and, and then try to get the, uh, McCheese burger down in price. They do those two things in combination, do those things.

Don’t come down. They don’t come down. They just, they just add more filler to it.

Yeah. There you go. Yep.

That’s all good stuff. Hey, thank you guys for joining us here, uh, this morning. And, uh, we’ll look forward to next week’s report here on, uh, our cell for 1% channel Barlow radio.

And until then you will eat the bugs. Dave says global recession coming. You will own nothing and you will like it.

I did, uh, buy some, uh, little edible scorpions. I was going to try to get the grandkids eat those. There you go.

The gummy bear things. Are you talking about actual, actual, actual scorpions? Oh, Jackson, literally the other day. So everyone, papa and Kashi got you ants to eat for Christmas.

There you go. And I will never eat the bugs. I cannot even get my grandkids eat the scorpions.

Yeah. You know, we’ll see. Well, we’ll slip them in there.

We’ll put them in their potato chip bag. Your outro is as long as your intro. Well, you’re supposed to do the outro.

I’m waiting. I was waiting. Then you just started doing it.

Listen up people. If you like the content, like, and subscribe. If you’re listening on a podcast, leave us a five-star review, make it easier for people to find us.

If you need a loan, call rich. If you need to buy or sell a house, give me a call. 21 years now, the best looking realtor in central Ohio as voted on by my peers.

And if you got to complain or you don’t like the video, call Dave. He will love to hear from you. He is driving around stereotyping everybody.

Just give him a call. He’s got 20 minutes. He’ll talk to you.

There you go. And stay out of Hilliard day. That’s my territory.

I know. I know. All right, guys.

Thanks for watching. We’ll see you next weekend. Go bucks.