The Accunet Mortgage Show (10/27/19 Episode)

Brian and David Wickert talk about the myths surrounding reality home-buying TV, and how today’s mortgage rates play into the larger national and world economies.

The Accunet Mortgage and Realty Show, February 10th, 2019

This week’s highlights:

  • This week, Brian was featured in a Wall Street Journal article on the impact of rate drops on the economy. 
  • On Friday, the 2019 Budget Deficit was announced, amounting to roughly $1 trillion — the highest level in seven years. 
  • Don’t be fooled by what’s on your screens; Freddie Mac released a list of 5 myths surrounding real estate reality TV to watch out for.

Wall Street Journal Article: How do rates impact the real economy?

Brian was recently contacted by Nick Timiraos, Chief Economics Correspondent of the Wall Street Journal, for an article on how the 1% drop in rates is impacting the housing market. The answer? Not as much as you’d think.

The rate drop wasn’t really a stimulus. Here in the 5-county Milwaukee metro area, 2019 home sales are actually down year-over-year. In fact, we’re off by 1.8%, with an increasing sales price. The median sales price in the area was $210,000 in 2018. In 2019, it’s $230,000. So, any drop in rates won’t matter too much, because buyers wind up paying more for their new home.

“If you are thinking about buying a home, that drop in rates is very important . . . But the drop in rates has been gobbled up by the increase in prices caused by higher demand and lower inventories.” – Brian Wickert

People don’t buy a home solely based on rates; buying a home is a personal decision. It often corresponds with getting married, buying a home, or downsizing — not things you can put on pause while you wait for rates to change.

Freddie Mac: 5 Myths about Home-Buying Reality TV

Last year, a home improvement-based TV channel attracted 1.3 million viewers, ranking it fourth in America’s most-watched cable networks. Freddie Mac released a blog post detailing the most commonly-held myths these shows encourage — and here’s our take:

Myth #1: Always buy in spring.

That’s when most homes are listed for sale, but if you buy or sell a home in winter, it’s not a big deal. In fact, both Brian and David Wickert have purchased their houses in winter, when sellers tend to be more highly-motivated and willing to negotiate.

Myth #2: You don’t need a real estate agent.

On TV, they make it look like real estate agents just show you homes. Trust us: They do so much more. Please, please have a buyer’s agent. If you need help finding an agent, we know who the good ones are — contact us, and we’ll help you!

Myth #3: You’ll find your dream home right away.

Maybe so. But will your offer win? Maybe not. Accunet helps craft an offer with the highest possible likelihood of winning — and we consider the Rock-Solid Guaranteed Pre-Approval a big part of that.

Myth #4: It’s normal to go over budget.

Reality shows often show people going over-budget on home purchases. And sometimes, it happens. Depending on where you are, offering $5,000 more for the home really wouldn’t impact your finances that much.

Myth #5: Renovations are easy.

No, they’re not. Certain people can make them look easy, but they just aren’t.

The 2019 budget deficit, and its impact on mortgage rates

Last Friday, the 2019 Federal Budget Deficit was announced at roughly $1,000,000,000,000 — one trillion dollars.

One million vs. one billion vs. one trillion

It can be hard to grasp just how much one trillion dollars is. To put it in perspective, Brian describes it like this:

If you bought a $100,000 Ferrari every day, it would take….

  • 10 days to spend a million dollars.
  • 27.4 years to spend a billion dollars.
  • 27,397 years to spend a trillion dollars.

Federal sources of revenue, and what it’s spent on

To understand where the money is coming from, and why there’s such a huge deficit, it’s important to look at where the government gets its money from to begin with.

  • Individual income tax: $1.7T
  • Medicare/Social Security/Medicaid: $1.25T
  • Corporate income tax: $230B
  • Excise taxes: $99B
  • Trade tariffs: $71B
  • FDIC insurance premiums: $52B
  • Gift and estate taxes: $17B

So in total, that’s about $3.5T in revenue, which in turn gets spent on:

  • Medicare & Medicaid: $1.15T
  • Social Security: $1T
  • Military Spending: $600B

This comprises 66% of government spending — the rest isn’t really important for our purposes.

Why is the deficit important to mortgage rates?

The deficit is important in the mortgage world because someone has to be willing to buy the $1T of debt, along with the $1.2T in fresh mortgage debt that gets produced every year.

Right now, there’s a huge appetite for interest rate-bearing investments, specifically in the USA, where the 10-year treasury is around 1.8%. America has a positive interest rate, which makes buying those debts much more enticing. When mortgages are bundled together and guaranteed, they look very attractive; compared to countries with a negative interest rate, the American 3% yield on purchasing debt is very lucrative.