← The David Greene Show
The David Greene Show
Mortgage Monday - Tariff Trauma Hits the Mortgage Industry | Episode 56
00:22:23
Loading summary
Transcript31 lines
- [00:00]
David Green
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS and no sales pitches. I'm David Green and I've been doing this for over 10 years. I've seen the ups, the downs and everything in between. This is the show where we pull back the curtain and show it to you, too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's going on, everyone? This is Real Talk Real Estate. I'm David Green, he's Chris Ambassador, and this is Mortgage Monday. Christian, what's going on? We are living in a crazy time. I can only imagine what your world must look like. How have things been?
- [00:35]
Christian Ambassador
Yeah, it's tariffs, tariffs, tariffs, right. Usually the three repeating words in real estate is location, location, location. Not these last two weeks. Right. It's been all, all the T words this week. Obviously, we're recording this, what, April 9th. We're right in the heat of, you know, tariff and tariff in the world right now. Right. And seeing what comes from that. And it's funny, about 30 minutes before this airing, apparently Trump announced we're going to have a 90 day pause on tariffs, except China. So kind of interesting to see how securities and bond markets respond to that. But this is going to be all tariff talk today, guys, so we'll have some good info on this one for you.
- [01:12]
David Green
Yeah, I think that gives you a little bit of insight into where his mind's at. If he said tariff on everybody and then a lot of the other countries came to the negotiating table, he's like, all right, I'll tell you what, we'll have a ceasefire for 90 days while we negotiate this. But China didn't come, so we're going to keep it on them. China is also the country that would be affected the most by the tariffs because we buy much more from China than everyone else. And it looks to me like the tariff news is kind of slowly shifting into trade war with China news. And that is a very complicated relationship. They own a lot of our debt, we buy a lot of their stuff. A lot of their economy is built on making stuff to send to other countries. We buy more than everyone else. It's one of those things where a divorce would hurt both parties, but a strong marriage would really help both parties. And so today we're going to be talking about how these domestic problems, if we want to call them, that this economic trade war is affecting mortgage rates and what we've seen happening just in the last week. So in a surprising turn of events, I don't think anyone predicted this, Trump declared there's going to be tariffs on every nation. Was it 10% on everyone? Do you remember? Is that what it was?
- [02:15]
Christian Ambassador
His base was 10. And then it scaled up from there based on trade deficits.
- [02:19]
David Green
Okay, so it was 25% on autos and then 10% base. And then they came up with a formula that basically said, we want it to be even. So now there was like a kind of like an algorithm they came up with that said based on how much we buy versus what they buy. And it was a significant number. And now we've sort of scaled back. Well, when he first announced the tariff talk, people immediately started selling stocks. I'm going to get your opinion on why that happened. But my understanding of it, my perspective would be people who own stocks realized this stock will be worth less because the company will be less profitable. Profitable when they have to pay tariffs on the goods that they are importing. So let me sell the stock now before the price goes down. The stock market dropped. It dominated the news cycle. Does this sound like pretty much your take on it or do you have any other perspective there?
- [03:05]
Christian Ambassador
Yeah, that's, that's a big part of it. I also just think the markets never respond well to uncertainty. Right. So regardless of how things are actually going to impact the bottom line, investors just don't like knowing, not knowing what's coming next. Right. And typically whenever something like that happens, there's an aura of fear that kind of takes place. Right. And wanting to have that certainty. And I think that typically leads to, you know, drops in stock markets and, and people kind of wanting to let the dust settle, you know, and really, I mean, we haven't really tried tariffs in a long time. Right? Like, really, really trying.
- [03:37]
David Green
No, it's like you forget even about, you hear about that word in a history book. You don't think about it like a real thing. People would do 100%.
- [03:42]
Christian Ambassador
We've had a lot of free trade agreements for a long time. That's been kind of America standard, which is kind of what got us here. Right? That's a portion of it. That's not all of it. You know, we're not a production based economy anymore. Right. We're a service based economy and we're, we're a buying economy. You know, America buys more. Like David said, we're not a very large percentage of the world's population. We buy a lot of stuff though, Right. You know, and ultimately that does, you know, skew, skew the balance a little bit in our favor in terms of, you know, demands that we can make. But it also goes without saying that it, you know, that comes with impacts to the markets, you know, and I, I do think Trump knew, you know, I know when he was running, he says, you know, tariffs won't impact the market. I, I think anybody can tell you that something like this would. But it's very, very interesting to see, like David said, investors kind of like run for shelter a little bit, right when these news breaks and see how, kind of how, once the dust settles, where does the money go, right. Is it in bonds, is it in securities, is it in treasury yields? Is it, who knows? Right. And that's what we're kind of seeing take place here in real time even as we record this.
- [04:45]
David Green
That is a great segue into what I wanted to talk about because I had a point that I wanted to make that you sort of just hit there. I heard an interview with Howard Lutnick, I believe, and the gal interviewing him said that $1.3 trillion of wealth was lost. Like it just evapor because it left the stock market. But that's not really an accurate way to look at how this works. Like the money doesn't disappear. The wealth moved from the stock market to someone else. Right. Like you turn on the spigot and the water drained out of it. And we measure that as stocks went down. But it has to go somewhere. It either sits in people's bank accounts or it goes back onto the balance sheets of big companies. It becomes equity for people or they go buy something else else with it. And usually when people are worried about the economy, they put less emphasis on profit and more on safety. Like you just said, they don't like uncertainty. And so they go buy bonds or government issued notes that feel safe but typically pay less than stocks. And that's what we saw. So a lot, the Treasuries absorbed a lot of the wealth I think that came out of the stock market. And can you just explain for the listeners how that dynamic, when more people are wanting to buy T bills, bonds, government notes, however you want to describe that, how that ultimately affects the mortgage rate that you get when you apply for a loan?
- [06:02]
Christian Ambassador
Yeah, I mean, th, those rates, like if you guys just look up the 10 year treasury yield. Right. Typically those rates give you an understanding. And like a lot of, you know, we've said in the past, a lot of people online say it's not a one to one correlation with mortgage rates. So just because the 10 year treasury moves doesn't necessarily mean it's like how people misconstrue the federal funds rate. There is a very strong correlation though to the 30 year mortgage rate. Right. Average rate in America. Now when people flood into the bond market like what David said, just like supplies and demand, you know, laws of supply and demand with anything, the more buyers there are of something, the less return it needs to pay to drive those buyers. So as that money evaporated from the stock market and went into bonds, that drove the rate, rate of return on bonds down. And that just means it lowered the interest rate that the bonds paying. Now to answer David's question of how necessarily that correlates to the 10 year treasury yield, if more investors are buying that money, that means the rate of return goes down, which ultimately in a roundabout way the federal funds rate, you know, may show signs of going down. It eventually means banks can get cheaper money, which means they can lend cheaper money. That's kind of, I'm, I'm very, you know, summarizing here. But the idea is money becomes cheaper, right? To the banks, to you, to the borrowers, to home buyers, to everybody. And that leads to lower interest rates. And you know, we're seeing some of the most just this last week, guys, we're recording this on Wednesday, starting Wednesday last week. I have seen some of the craziest market volatility that I've seen in the last decade in this last week. And there's been really good, we'll get into the numbers. Really good days, really good, really bad days, changing almost with the blink of an eye. It's been pretty crazy this last week.
- [07:53]
David Green
Yeah, I think a lot of people operate on the default that the interest rate on their home loan or mortgage is tied to the fed funds rate, which the government, not the president, but the government through the Fed does move manually up and down. So when we hear about the Fed, or you may hear people say Jerome Powell, Jerome Powell is currently the president of Fed. I think it was Alan Greenspan before for him. Is that right? Or was there someone else in there?
- [08:18]
Christian Ambassador
I don't remember.
- [08:19]
David Green
It doesn't really matter. Actually this isn't a history lesson.
- [08:22]
Christian Ambassador
The most powerful guy for quite a while.
- [08:23]
David Green
We know that Jerome Powell can move the rate up and down. So we assume that that would affect mortgage rates, but it really doesn't. Mortgage rates are set by the market. How many people want to buy a mortgage after you apply for it? Which also maybe is some small consolation as to why it feels like a Root canal. Every time you apply for a loan, and we're like, we need this document. We need your taxes. We need another pay stub. We need a letter from your employer. And people are just like, d, why do you so much? Well, it's because the people that are giving you the money are going to sell it to someone else. And that person wants to know, did you verify everything? Because I'm buying this paper. I want to know they're going to make their payment. Well, when everybody's buying the paper, they're like, no, no, no, give me the mortgages. I want them, I want them, I want them. The rates go down. And when people are like, hey, I don't want that stuff. I want to go buy stocks. Well, then rates have to go up. There has to be a higher interest rate that you pay to entice someone to buy your loan. And you may say, well, why don't banks just keep the note on their own books? Well, because they run out of money to give a loan to you. And that would make mortgages even higher. Because if there was a scarcity of liquidity, they didn't have actual capital to lend out. Now they're only giving it to the best, best, best approved people and at the highest rate. So as you see money leave the stock market, it usually goes to the bonds market. That usually pushes interest rates down, which led to the volatility that you just mentioned. So give us an example of where rates were, where you saw them go, and where they're at now.
- [09:42]
Christian Ambassador
Yeah, flashback to Tuesday of last week, before this last crazy week. We're sitting kind of upper sixes, like 6, 6 8, 69 range from Thursday and Friday of last week. We dropped a lot. We dropped almost down to like mid sixes. Six, five, six, six. And just so you guys understand, like almost a half a percent rate drop in two days is like extreme. That's like severe. There's major things happening. And you know, it's interesting, these last two days, Monday and Tuesday, we're on Wednesday now. So leading up the first half of this week, we had almost that exact add back to the market, which means rates rebounded right to where they were. So if you were a home buyer and you locked in your rate on Friday, good job. We have a number of people that we did that for. Right. If you decided to float it and you said, oh, they've been down for two days, I think they're going to keep coming down. The market's going to continue to retreat from the securities market. Respond to Trump's tariffs, inflation, yada yada. And they're going to flood the bond market. It hasn't actually happened this week, which is very interesting because the stock market has still been going down. You guys can see on the news. Right. We, we've had down stock markets Monday and Tuesday, but it didn't necessarily lead to a increase in, in bond and treasury note. That's which is a very interesting dynamic that we can talk about here coming up.
- [11:00]
David Green
All right, so it went from, remind me, you said 6.8 down to 6.5.
- [11:06]
Christian Ambassador
Say high sixes to mid sixes, back to high sixes.
- [11:10]
David Green
All right, so rates went down obviously because the tariff talk scared people. They pulled out of the stock market, money fled to safety. That pushes mortgage rates down. What made them go up so fast?
- [11:19]
Christian Ambassador
Yeah, that's super interesting because the money did not necessarily flood back into the stock market. Right. Typically we view these things as kind of, you know, a reverse correlation. Right. But we actually had a very unique thing happen where money retreated from the stock market and the bond market. Well, the answer, the question is where did it go? Right. And I have a note that I just wanted to read. I get a fun little market update every, if you guys are interested in hearing about it, you can always reach out to me. But let me just read this, this blurb. Bond prices are weaker this morning. This is as of Wednesday morning here, April 9, as treasury yields continue to rise. So that's the rate of return on treasury yields continue to rise due to a lack of buyers. The US 10 year treasury yield is currently at 4.38% up from its opening level of 4.31. Tariff related uncertainties remain. A significant disruptor in US markets with ongoing trade tensions between the US and Russia. We talked about that. This has resulted in pushing yields higher than yesterday amid a broad global equity sell off. U.S. treasury yields, this is the important part, have defied expectations over the past two days. These are the two days of rates increase that David's referring to, indicating that investors may be overlooking Treasury's usual role as a safe haven in the short term during conflicts. Very, very interesting. So this means what? Historically investors retreat from the unknown of securities. And we're using that word, guys, securities, just the stock market, that's your Apple, your Facebook, yada yada. Right. Typically investors retreat from there. They, they retreat towards the security of bonds that paid a guaranteed rate of return. They're backed by the US Government like they're comfortable with that. And there's been a disruptor. Now where that's not the case. So that means one of two things could be happening either. Number one, these investors think the stock markets may rebound quickly. That may be as we recorded this, we saw, I saw the notification right before this that Trump is going to do a 90 day pause on his tariffs. So maybe some investors got wind of that or they're starting to question the security of U S bonds and that's a bigger issue. Right. That means maybe they have questions if the U.S. you know, is going to be able to repay with our balloon dead. Questions of the security of those bonds. Questions of the stability of those bonds. Right. I know America has to refinance a lot of our bond debt right now. You don't usually think of a country financing, but we do, we renegotiate the rates that we pay on those bonds. And all of that combined with the supreme uncertainty in the market right now of like how is this going to impact global trade? Are America's going to be able to, you know, buy the same amount of things or the company's going to do as well? It could just be leading in a, it could be leading to an entire sale. You know this, our news article that I just posted said a global sell off, that means people aren't moving money to anything, they're moving it to money. It's just money now. Right. Where a lot of these investors may just be like collecting their chips and saying, you know, gambling term, I got all my chips from me. I don't want to play another hand right now. Right. Like let me just kind of hoard my chips and just see what the hell is going on here for the time being. Which is a anomaly that usually does not happen in the market. Which is why we're making a mortgage episode of Mortgage Monday episode about it. Right.
- [14:42]
David Green
You know something else I thought of when you were talking about it, I wonder if some of the really smart people with a lot of money, those are usually the people that are buying a significant amount of bonds. It's not market makers. I wonder if they're looking at this thing with China and the US and thinking, you know, I wonder if Trump's going to play the card of I'll just default on all the debt we have the China, we'll see how you guys like that. We won't pay you. And I don't think that we're at the point where we're going to do that. I think that would be an all out, like, I don't know, you just cheated on your partner in this Marriage example that we're giving, like, that's things are going to get very ugly. They're going to stop sending us stuff. I don't think it's at that point, but I wonder if there are people that are anticipating it could go there. And they're saying, like, that would basically crash America's ability to borrow money from anybody at that point. So I don't want to have these bonds if they're not going to pay me back to. Hopefully that's not what people are worrying about. But like you said, it's probably more likely they want to have a lot of liquidity. They want to have their cash in the bank so that when the opportunity pops up, they can go redeploy that capital. Now, what advice do you have for somebody who's sitting on a potential refinance and they heard that rates dropped, but by the time they got around to making the phone call or sending the message, rates had already gone back up?
- [15:58]
Christian Ambassador
Yeah, it's a position that a lot of people are in. Sometimes it takes a day or two to submit a loan application, right? Like you just. That's, that's what the turn times are. Constant communication is my advice. If you got a loan officer you trust, if that's us, awesome, call us, text me, right? Like, reach out, say, what did they do today? You know, and there's a lot of, you know, I know there's Mortgage News Daily. There's, you know, if you just Google Mortgage Rate Update, you can, you know, bunch of free services online that you can utilize. But if you see what we saw, Thursday and Friday, huge plunge and you're considering a refi, cashing out, you know, whatever the situation, if you're sitting at 8% and you wanted to, you know, get close to the bottom when we have like 50, 100 bips of moving over two days, lock your loan, right? Just to make your advice, I give you simple. Lock your loan. That usually will not stay and there will be some rebound, which is exactly what we saw the first part of this week. So constant communication will be my answer. David, make sure you have a loan officer or advisor that you trust. You have an application with him ready to go, right? Because we don't want to have those one to two days that it takes to submit a loan app, get it processed, get it locked, order your appraisal, get it going.
- [17:09]
David Green
So do your loan application early, meet with your loan officer. You could submit some of your documents. Maybe you don't need to submit a, like a bank statement because if you don't know when you're going to get a refinance. Having a six month old bank statement won't help you. But your taxes could be submitted early, like basically be ready. And then when you see rates drop, if you think, hey, this is a scenario where they could come back up, we could just get us a handful of things and boom, we can get a loan submitted and we can try to lock something in for you. Does that sound like a plan?
- [17:37]
Christian Ambassador
That's exactly right. And the, a side piece of advice I would give because it's very easy to try to time the bottom. Right. Like, oh, it went down for two days, what if it goes down for three? Yeah, it goes down for four. Right. And you get, you get into a very dangerous mindset of you just never make a move. Right. And it's the same thing with negotiations.
- [17:52]
David Green
Right.
- [17:52]
Christian Ambassador
Like I'm in an analysis paralysis until I find the absolute cheapest house in the absolute best location with the absolute most square footage and the absolute best opportunity. You know, and it's like, you're never gonna buy a house because that it's not real. Right? Right. So instead, do a rate analysis with your, with your loan officer, your broker, your lender, your credit union, whoever you're using. Do a rate analysis, do a break even period. Is the savings worthwhile to refi or if you're cashing out, does the cash flow or your holding expense or whatever make sense as it stands, does it significantly benefit you? If so, lock it in. If not, wait. Right. But if there's a benefit today, you get real dangerous waiting for the bottom. I have many clients that I talked to on Friday and I said, lock your loan. And they said, tariffs are plunging, the market rates are going to do great on Monday. I said, okay, do you like the rates where they are right now? Yeah, but they could be better. Monday comes, they're not better. So I, I wish I had a crystal ball. I, I can't tell you for sure what will happen. But when you have two days of back to back significant rate drops, lock your loan. It's just a smart thing to do. Right? Yes, there could be three, yes, there could be four. It's rare and it's, it's more rare the longer you expect it to continue happening.
- [19:10]
David Green
That is great, great advice. Now, Christian, if people want to reach out to you right now, they're smart. They listen to mortgage Monday, they follow real talk real estate, and they're like, you know what, I trust these guys. I don't want to be Dumb. How can people get a hold of you?
- [19:21]
Christian Ambassador
Yeah. Best two ways. Direct message me on Instagram at the one Broker. Underscores between. So the underscore One underscore broker. It's got a bunch of mortgage Monday videos on it, so make sure you're following the right account. A lot of scammers out there. I don't do crypto, guys. And then my email is just simple. Christian, the1brokerage.com. If you want to reach out to me directly, that's a good way to do it as well.
- [19:43]
David Green
That's awesome. If you want to talk to me, you can go to davidgreen24.com There's a chat option on the website. You can get a hold of me that way. You can also send me a message on Instagram. I tend to check those the most. I'm most likely to see it. Or if you have my email, send me an email. Also, I put out a free text letter every single week that has rate updates from the one brokerage that has relevant economic news, that has real estate updates, that has giveaways, events that we might be at, all kinds of cool stuff that's going on in my world. It's called behind the Shine. Head to real talk real estate.com text-letter. You can sign up there. I promise I will never sell your email to anybody else. It's only for our use, guys. People say it. It comes in all the time. They loved working with the one brokerage. That's why we make this free content. We're here for you. We want to finance you, your friends, your family's real estate. Things are actually going so good for us. Even at a time when most loan companies laying off their people, that we are trying to hire more loan officers to come to work for us. Christian, before we get out of here, can you give a brief description of the ideal candidate that we want to apply to come work at the one brokerage?
- [20:41]
Christian Ambassador
Yeah, guys, if you're. If you're a loan officer in the industry and you're able to do between one to five deals a month and you want to double or triple that with good systems, good processes, good products behind you, we're looking. We need support. We need help. You know, we do all we can and we, we do a damn good job. But there's. There's a lot of people that need our services. Right? Reach out to us. If you're in the industry, you have some experience and you want to expand what your capacity is with a good team behind you, set up a time to talk. It's where it's a worthwhile conversation to have. It's free. Take 30 minutes. Let's get together.
- [21:18]
David Green
So if you want more support pre approval specialists to get you Pre approvals in 24 hours, processors to help you get loans closed faster and with less effort on your marketing, support an amazing number of products, probably more than anyone else we've come across and also the ability to offer really competitive rates to your clients. Reach out to us. We gotcha. That's the point of this whole podcast. All right, thanks for being here, Christian. And if you're listening to this, thank you. We love you. We know that things are tough right now. We know that there's a lot of scary stuff going out in the news. Don't buy into it. Keep your head about you when everybody else is losing theirs and you will be a man, my friend. We'll see you guys next week on Mortgage Monday.