Over the weekend, I spent time with a friend who is currently in the market to buy a home.
He and his family already found a solid prospect, and are in the process of making an offer.
We spoke about that for a bit and I basically said, hey, if you love it and can afford it, and plan to keep it long term, great!
That’s when he turned to me and said something like I don’t plan to keep it. I expect to sell it shortly after I buy it and then buy more homes to take advantage of what’s coming.
Then he went on to tell me about how great the housing market is about to be.
The Golden Age of Housing Is About to Be Upon Us?
While most view the current housing market as being in the late stages, and perhaps starting to slip, he was beyond optimistic.
He explained that once Fed chair Jerome Powell retires next year (at least he didn’t say he’d quit or get fired), the Fed would lower rates to zero.
That would lead to the return of 3% mortgage rates, or something close, by his logic. And the result would be another housing boom, with home prices rising 20% plus.
This would ostensibly allow him to buy a house now, make some improvements (he’s a handy guy), and then turn it for a tidy profit.
I wasn’t expecting any of what he said, but I was happy to listen along and provide some feedback.
One of the main things I wanted to point out was that the Fed doesn’t control mortgage rates.
That if/when the Fed does cut their fed funds rate significantly (which isn’t a guarantee by any means), mortgage rates may not follow.
Or even if they do follow to some extent, it could be marginal.
Ultimately, the only thing the fed funds rate directly affects is HELOC rates, which are tied to the prime rate, which moves in lockstep with the FFR.
So it would be a boon for those with HELOCs or those thinking of taking out HELOCs. But again, that’s if the Fed even slashes rates dramatically.
The other thing I pointed out was that the reason mortgage rates were so low much of the past decade was because of Quantitative Easing (QE).
The Fed bought trillions in mortgage-backed securities to increase demand and raise prices, thereby allowing yields (interest rates) to fall substantially.
Would they do that again? Seems unlikely, especially with the current battle against inflation still raging. And a reasonable fear that tariffs could reignite inflation.
I delicately tried to explain all this without sounding like a wet blanket or a pessimist, but he wasn’t really listening. He seemed set in his ways and that’s fine. Only so much you can do.
And nobody really knows the future. Maybe he’s right. My issue was the short-term thinking and the timing of the market. Nobody ever seems to pull that off.
If you’re going to buy a home, great. Just expect to hang on for a while. Especially right now with principal repayment slowing to a crawl with higher interest rates.
FOMO After Missing Out on the Previous Housing Boom
This kind of exemplifies the issue with the President of the United States and the FHFA director (who oversees Fannie Mae and Freddie Mac) calling on our Fed chair to quit.
While arguing that the Fed needs to lower rates so people can buy homes again and refinance their mortgages.
It’s disingenuous and misleading, and perhaps it pushes everyday Americans into thinking if and when they get their way, it’ll pan out as they claim.
Maybe this is why my friend is thinking like this. Because he sees powerful people on TV and the internet saying this is how it will go.
We know Trump is all about running a hot economy and ushering in an economic “golden age.”
But what if it doesn’t work. What happens to people like my friend who look ready to go all-in on this vision?
Ultimately, my friend sees an opportunity and doesn’t want to miss it like he did the first one.
As a renter all these years, he hasn’t seen any of the upside all the existing homeowners have enjoyed.
Even those who purchased a home during the pandemic a few years ago have seen their property values rise some 50%.
And of course they snagged those record low mortgage rates in the process as well.
I totally empathize with someone who didn’t benefit from any of that. I just worry that they might be the ones hurt the most if things don’t pan out like they expect.
Now if he had told me that he just wants to be a homeowner, and understands it might be rocky in the future, but that he’s in it for the long haul, I probably wouldn’t have written this post.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.