First Fed Hike in Three Years...The Headline Does More Damage Than the Rate

I guess I have to work faster now

I have a duplex I bought a few weeks ago sitting in the middle of a rehab right now, and two single family homes wrapping up as I write this. All three are getting refinanced.

So I watched Warsh raise rates this afternoon with a fairly specific kind of interest.

They went up a quarter point, to 3.75% to 4%. First increase in three years. Unanimous, twelve to nothing, not one dissent. And the dot plot has sixteen of eighteen people expecting another one, with four of them seeing two more.

Is it frustrating? Yeah. It mostly makes me wish I had finished those projects faster.

It does not change my strategy. It just put a lot more fire under me.

What He Actually Said

Worth watching the press conference yourself if you have the time. Link to Press Conference with Warsh

The line that stuck with me, and I am paraphrasing here rather than quoting: he said the people who benefit most from this are the bottom fifty percent, the ones who do not own assets. And the people it affects are the people who do own them.

That is us! He said it plainly and he was not apologizing for it.

His actual words on inflation were "this summer's inflation readings do not tell me that underlying trends have meaningfully improved."

So here is my read. They care about inflation and the long term economics a lot more than they care about short term asset prices or the people holding those assets. That is not going to change on its own, and I do not think it changes this year.

Which means if the bond market keeps doing what it is doing, we could start seeing 30 year mortgage rates climb from here. Possibly. Nobody knows.

But That Is Not the Part That Actually Hurts

Here is what I think matters more, and it has almost nothing to do with the math.

He raised rates.

(I know mortgage rates have a lot more to do with the 10 year than they do with the Fed. You probably know that too. The public does not, and that is exactly the point.)

Most people are not going to read the statement. They are going to read a headline. Then a news segment, then a post, then somebody in a comment section who is certain the whole thing is coming down. And the average buyer is going to pull back and wait.

The investor who already owns property is going to get more stressed. Some of them are going to panic sell. Most will not, but some will.

And the buyer who does not have to buy is going to sit on their hands. Because nobody wants to buy an asset they think is about to be worth less next year.

That is my actual prediction out of today, more than anything to do with basis points. More people on the sidelines, watching.

And that absolutely affects house flippers. That is our buyer.

"But Tarl, if buyers are sitting out, why are you excited...."

Because sitting out is not the same as not buying. It is a price problem, not a desire problem.

There was a house near me last week listed at $199,000 that was probably worth around $250,000 at the time. Every investor in the market jumped on it. Multiple offers inside six hours. It sold for more than $250,000.

Six hours. In this market. With all the fear I just described sitting on top of it.

If that seller had listed at $250,000, that house might still be on the market today.

So there is a bottom in every market.

I know roughly where it is in my neighborhoods in Austin, because I watch what happens when something hits it. Anything under about $200,000 in those areas and the phone lines light up. Most properties are just not there yet.

Where is the bottom in your market? There is one. You find it by watching how fast people move, not by reading about it.

I think this fall and winter are going to be a good time to buy in Austin. I genuinely do.

And If You Are Holding Something You Are Unsure About

Everything I wrote last week stands, and today made it more urgent rather than less.

Appraisers look backwards. They are pulling the last six months of closed comps. If you are thinking about a refinance on something, this might be the highest number you are going to see for a while, and waiting to find out is an expensive way to test it.

Get the appraisal. Then decide.

I would rather be wrong about that and have cost you an appraisal fee than be right and have you find out in February.

The Deal Teardown, and Thank You

I floated an idea last week about tearing down deals people send me, and a bunch of you replied. More than I expected honestly.

So we are doing it. First one is in October, live.

If you have a deal you are working through right now, or one you are genuinely struggling with and looking for options on, email me and tell me what you have got going on. I will put you on the list. Anonymous if you want it that way, or come on live with me and we will work through it together.

I will announce the date shortly.

Good luck, it's that sort of market right now.

- Tarl Yarber

(Once again, I personally write these...)

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