Orlando Weekly Housing Market Update
March 23, 2023
Federal Reserve Increases Rates.25%, How Does That Affect Real Estate?
Good morning, Brenden Rendo with The Homes In Orlando Team joined again by Joseph Dionne.
I don't know what the 1361176 is. But, hey, from Appli home loans
my number.
Right. Well, is that what number? yeah,
that's, but, that, that, I guess I, I, I'm using a different computer today because I'm on the road and I think, I didn't realize that was, that was in the system.
so I just, I was like here every week my title changes. My name changes on here.
Well, I've gotten so
used to the mortgage guru.
So I, that's my favourite one, you know.
So we've got, so a lot of news coming out, you know, again this week, of course, we had Jerome poll yesterday, and the fed and, I actually got a chance to watch the, news conference live and for someone who's trying to invoke confidence in the banking system came across really weak,
all that he was not confident yesterday. Was he? My goodness. No,
no, I, you know, when you're doing a presentation, you wanna, you know, be boisterous, you know, you stand tall and he was very meek in both his mannerisms.
He's a, he's a quiet person anyways.
But in his mannerisms and his, his vocal content, he really just kind of avoided a ton of questions.
Yeah. You know, and that didn't, that didn't invoke a whole lot of confidence in me.
not at all.
I think the main, the, the couple of the major points that I took out of it is they're really not sure which way to go because you've got banks in trouble because of the increase in the interest rates.
he doubled down and gaining employment To 4.5%, which is about, I think it was between 1.4 and two million people losing their jobs by the end of the year.
And, then he just kind of totally avoided what a lot of people are starting to look at, which is the commercial mortgage backed securities, which I mean, he totally blew off that question just right over his head.
which a lot of people are starting to bring up that, hey, the exposure on these is a lot bigger than even on the, on some of the bond situations that we currently have.
So I just, I walked away going. not, not, not sure what's, what's gonna happen.
He, he kind of said that they may back off the rates.
He did say his, they're, they're projected is 5.1 for the end of the
year. Yeah, which means a little bit of change.
Yeah, it means, you know, you're probably gonna get another, you know, and, well, at this point, what another quarter of a point before it drops out something somewhere in that ballpark.
So, but he also felt that the, the bank runs are going to help tighten the overall, credit available out there because as the banks get fearful of all this exposure, they're going to start tightening their requirements on their lending.
And I've actually read some, read some stories, recently where a number of the credit companies credit, you know, credit card companies are starting to lower the limits.
people. Yeah.
So he felt that, that alone, that, that, as well as the increase in the rates could actually, be enough to tighten things down without possibly too much more rate increases.
So, I mean, when we look at the, Where the betting game is going right now is probabilities at the next meeting, which is about, is actually 41 days away.
You got 55% of the people are saying no change to the rates And you have 44% right now saying that they're, they're gonna increase it and looks like a quarter of a point.
I think it really depends on where, what happens with the banks.
Yeah, I think, I think that's where we are, like you said, there's so much data that's not being accounted for.
Like it's gonna be really like, it, it's kind of a weird piece is because we've been so focused on the residential side that a lot of this has.
Like you said, we've been ignoring the commercial side of how that can play into and how that's gonna spill in.
And the commercial side when you have some defaults on the residential side, they're relatively small.
A lot of times commercial side, like a little defaults on a commercial side.
These are big numbers which can have really big impacts to the bottom line and to the budgets and to the the balance sheet of these banks.
So you can see a big, I, I think, you know, I, I could see us, I, I mean, I see an avenue where I could see the Fed not making another increase this year, you know, and I can also see an avenue where the Fed makes, you know, a half, another half point to three quarters of a point.
I don't think we're gonna see another full point. No,
no, I, I don't think we can do it.
Yeah, and, and that's the hard part is, as you mentioned, I felt like Powell came into this conversation and he backed away in some different areas and he wasn't very confident and he kind of, you know, and that kind of like the markets yesterday really responded positively to what happened yesterday.
But it was funny because Monday and Tuesday, the markets were just, they were ready for the worst.
So, like, they were getting worse, like big, you know, a lot of worsening Monday and Tuesday and then we kind of just saw Wednesday after the Feds talk kind of all gained back and kind of had to where we were on Monday before all the worsening.
So I think it's kind of like, ok, this was better than what we were hoping for.
But it's kind of like, I don't know, like I, I, I, I, you kind of when you don't have confidence, when you can tell Powell doesn't have confidence, it leaves us kind of stuck in a, I feel like they don't know what they wanna do.
So now I'm kind of like, I don't know what they're gonna do. Like, yeah,
you, you, you don't, and then Janet Yellen was actually at another meeting at the exact same time and basically kind of bluntly said we're not, we're not going to protect the regional banks.
Yeah, deposits are gonna be secured and it's like, ok,
that's, you know, but they set a precedent, they set a precedent that they would and then it's like, now we're not like I, I get, they probably have to take a stance of like, ok, we did it this one time but it's like, my goodness, I don't know what to say there.
Yeah,
I, I don't like when, when the government gets to pick the winners and losers.
Yeah, that, and that's what it, that's exactly what it sounded like was happening right here.
It's like, hey, like, you know, these people are gonna be ok and it sounds like they're gonna basically pick and choose who they want to protect and, and, and unfortunately usually that means that, you know, the, the, you know, the lobbyists, the people spending more money, they're gonna be the one to be protected, you know.
So, you know, you may see some regional banks that maybe are dealing with more like, you know, agricultural sectors and this and that, those may be the ones that they're like, we'll let that go and then the ones that are dealing with more tech, tech side of things, they'll be the ones that, you know, or, or pharmaceutical tech things and stuff of that.
Those will be the ones protected. Yeah.
Well, you know, the bank situation isn't over yet. Yeah.
You know, here's another one of the big regionals pac West 20 you know, 20% of their, their, deposits dropped so that I would consider a bank run and they've had to go out much like, S B B tried to do And raise funds.
So they, they, I know they've gone back, I believe it's to the, to the repo, got 12 billion there, got from the new program, I think they said they got another four billion there.
And then yesterday they actually had to go to a hedge fund and raised over another billion dollars there.
my goodness. So, it's a lot of money they're raising.
That's a lot. That's a lot of money. Yeah, you gotta, you gotta pay that back too.
Yeah. So, I mean, the, these, these banks, this bank situation isn't done yet.
You know, and that's where I think Polls is in a lot of confidence is because he's stuck between a rock and a hard place is, do you go to like the 1923 situation where you had hyperinflation or do you go to the 1929 situation where you had bank runs and collapse the economy?
Depression,
can we stay in between those?
I mean, that's where we're stuck right now.
You feel like you're stuck in the middle of the road and traffic is coming both ways and you're gonna get smacked in the way you go.
Yeah.
Yeah. And, and, and the hard part about this is the pe, and I hate to say it, it's like, you know, there's, there's, there's a small contingency of people that'll feel this right if, if one of those happens and they'll feel it for a day or two.
But there's a lot of contingency of people that are sitting in the middle and the lower like on the income scales, that'll feel it for months and years if something like that happens.
And that's the hard part. That's the, and that's really the hard part about this is like, you know, they're not going to, to, you know, they're not going to do something that just greatly impacts, you know, and only the top can impact or like, but that's the hard part is when you're at the top of the food scale, like, you know, food system, you're, you can take, you can weather the storm and it may only impact you a day or two or a month.
You know, it's everybody else that's gonna feel the brunt of this if they go into one of those extremes.
And that's where I hope that powe is really, really focused on, is making sure that we don't hit an extreme.
That's gonna completely because I think that's, if you really negatively impact the middle and the lower, you're gonna see this spiral much, much further back and it's gonna spiral much, much longer.
Yeah. Yeah. I mean, I just, you, you don't want to see, you know, they call it a recession when, when your friends gets laid off, depression is when you get laid off.
But when you look at that number that he's saying is, hey, you know, we've, we've got to get him unemployment up to 4.5%.
You know, and you're gonna, you know, you have a maximum of two million people.
It's like, and how do you stop it once it starts rolling, how do you stop it from being you know, how do you go under 5%?
5.5 6%.
And that's, that's the key right there is that, and I think that's the part that, and, and I'm sure they're looking at it, but that's the part that's not being answered is it's not like a magical number where you can be like, hey, we're gonna go from this to, to that.
Like, that's such a massive change and I, and I get it like a healthy economy.
If we're under 5% that's still a healthy economy and all.
But if it's an abrupt boom, we're gonna pick this number up two million plus people in six months time, that's not healthy.
And that two month million now you're gonna see businesses immediately react to that.
Get more conservative across the board which we've seen on the tech sector.
We've seen the tech sector already sit there and see what Google and Amazon, all these different companies are, are doing where it's like, revenues are down.
We've got it and they get hyper conservative. Right?
And, and they're letting go and it's like, all right now it's like Amazon
Just announced 90,000 layoffs.
Right. That's a big
number. I mean, p should be calling up, say thank you. You just took 1/10 of my number.
I appreciate that.
Right. You know,
But an additional 90,000 layoffs.
Yeah, that's, you know, and, and that's one of those where you got a big company trickles down locally.
It's like, OK, now all these people who are working at that location for Amazon aren't going to that restaurant, you know, to get meals.
So, guess what? Now they don't need as many waiters and waitresses. You know,
they're not taking vacations, they're not buying new cars, they're not doing this, they're not going to the store and buying new technology like it has an impact and that impact has a, you know, it's a snowball and that's the part that I think a lot of people are like, and I think what they're looking is they're looking at it in a bubble and I say, well, this is still ok and they're not going well, where are we now to where do we wanna go?
Will that have a bigger impact like that will, you know, and
you can see, you can see the stress on, on the American consumer when you look at, I mean, credit card debt has just exploded.
Yeah, massive.
You know, we
have a trillion dollars in credit card debt in this country.
It was, it was on the, it was on the down slope and
you know what, forget about student loan repayment. Let's just wipe everybody's credit card tax.
It's like, wow, it's really, and it's just, it's just, and when you see the graph, the spike is, you know, just, I
don't know, you know, let's, let's just go to a model.
We're just gonna give 50% of our income to the government and, and then nobody will have money to spend anyways.
That's what my brother in, in New York.
Westchester County, we, we actually calculate and he's like, 64% of his income taxes of some sort or another can make so much more than
me. Yeah. And he's like, I, I hope you enjoy that noodle in a bowl, noodle in a cup.
But no, like I think that's where we're kind of seeing this, you know, You know, and we're gonna see an impact.
But what's crazy is what locally, what are we seeing still?
We're, we're just steadiness. No, no real peaks, no real valleys, you know, but a AAA slow steadiness, you know, in the, in the overall market and you haven't really seen the construction slow down, which is always a big thing.
That's what you look at. First.
You look at that commercial construction and we're still seeing a new project here, a new project there, a new project here, talked to a plumbing company the other day.
Mr Cox and you know, it was now we're, we're booked out for like 18 months.
It's not bad. That's not bad.
So, so the question is, is if we talk to him in six months and he says we're booked out for 12 months, then we have to worry.
Then
you have to worry. Yeah. Yeah, then you have to worry.
But it, the other thing is interesting is the, you look at the, the T bell and we're kind of, it's, it's a real volatile but we're sitting in a range at least, you know, we're not, we're not jumping all over the place and sitting backward down around.
they were 6.5, roughly.
yeah. Rate on rates. Yeah, I mean, 6.5. Well, here's the hard part is because it's so volatile.
We're not seeing those rates kind of like we're not seeing investors play as nice.
you know, because they're, they're scared, they're scared to get aggressive with their pricing because they don't know because it's flipped.
You're talking in the last, you know, we've seen 30 40 bit spikes on the 30 year, in, in, in, in an hour or two.
I was laughing on Tuesday literally.
I think it was, I think 3 10 PM, we saw a 50 bit spike into the negative like just in a blink in 10 minutes and then over the next two hours it, it, it, it kind of bounced back up and I was like, holy cow, what the heck just happened and I'm trying to find information on what happened and there wasn't really anything big that, that caused it.
It was just, we had some, you know, some auctions that didn't go as well, but I think it was kind of just like a like, crap.
And I think somebody sold, like, somebody liquidated quickly and then, you know, and then it had to be bought up type thing.
Yep. Yep. Yeah. I mean, if, if we look, we really kind of send that range, you know, low three, you know, 3.4, You know, it did come back up here to a little over 3.5, but kind of sit in a range where you can feel a little steadier on your interest rates overall.
You know, you may lose an eighth year or gain, you know, get an eighth back here, but you're not jumping all over the place like it.
Like we, we had where 7 to 1 day, six and a quarter, the next day, 6.75 the next day and going into the spring, it's, it's nice.
I think a lot of people, the sevens like that, that fear, it's a
Psychological threshold. It is, it's amazing how because like usually in rate movement, like, you know, going from like 3-4, 4 would have been a psychological but we blew by fast so fast that it was
like,
yeah, we didn't even have, we couldn't even worry about those, you know, but seven was the point.
And I think that's where the hard part is, is like there's so much time spent in the threes that seven was, it was like, this is double what it was like, I think that's where psychologically a lot of people are thinking it's like, my gosh, this is double, like and like that, my interest rate is twice as big as what it was.
And a lot of people have that apprehension but you keep it in the Sixes and I think we're gonna be ok.
I'd love, love, love to see him back in the fives.
But I think we've got a shot this year to kind of touch it and to kind of sit at that top side of the five, but it's really gonna depend on and, you know, we all know this like it's gonna depend on what kind of happens.
And, you know, I, I think if what if what Powell wants happens, we'll see the fives, but I don't, I don't think I want that to happen.
I'd rather stay in the sixes and not have that.
So getting into getting into our numbers.
just like we said, steadiness, you know, throughout throughout the Orlando area.
So, you know, the the price actually jumped up a little bit average price 4.5%.
I think that's from, we're gonna, you know, seeing less discounts being yeah, inventory, yeah, drop 43.
But still I, I kind of look at it as kind of like a flat line.
So, but here's, here's the big thing again.
We always, you know, we look at every week is what is the original list sales price and the final list sales price percentage wise.
And again, we're creeping back up, we're up to almost 95% here on the original.
And then on the final, we've, they've came back about a half a point.
We're sitting just below, I think, 97 last week, we're now 97 a half.
So you're seeing less discount reason for that comes back to, you know, inventory again.
So, and here we are, I mean, we look at it, it's just sitting here, we're just we're not getting the influx of new homes that normally this time of year we
get, we get, do you think?
And I know we've talked about this but you know, do you get that little snappiness like that, that, that meme that we've seen of like the proper English guys like me looking at people that don't have the 2.7 like, you know, like I, I, I feel like there's a lot of people right now going I would move but I have a 2.75 like what am I gonna do?
And what they're choosing instead to do is be like I'm gonna turn it into a rental. Yeah,
yeah. And let me take advantage of this because you know, I can go, you know, here in my neighborhood, my gosh, 1800 square feet rent for 2500 to $3000.
Now, now what I do think will happen is, and this is, this is me being a little bit thinking a little bit, we're different than a lot of markets.
Right. Borrowers can't qualify and their tax bill doesn't adjust right right away because we have homestead.
So I think you're gonna have a lot of people that were like my rates. Great.
I'm gonna rent it and then next year when it's no longer their homestead, that taxpayer is gonna skyrocket and they're gonna be like, crap.
It's not worth renting and, and then you're gonna see. So I think next year we may see an influx.
That's, that's a great point because I was doing a calculation for a couple looking to purchase a home in the land That had been homesteaded.
Jo. Jo had it for 20 years. He was paying like $1,300. Yeah, on his taxes.
And we put it into the calculator. Theirs will jump to roughly about $5200 with the homestead.
Yeah.
And it's like I gotta make, I gotta make you aware of this is, is because, you know, this guy's owned it from like 1997 or something like that.
I think it was
Great rental year one. And that's the thing. Still probably a good rental year two.
But you go from, and that's like a lot of people.
They can't, if they, if they get a rental and they have a property manager and they go from making 600 a month profit to making 100 a month profit.
Yeah, they like, they can't afford it, they can't afford for something to go wrong at that point. Right.
And, and we know that that 600 they're not utilizing that forever.
So I think that's where you're gonna see a little bit of like, what's gonna happen here long term?
And I think we will see pro and it's a delayed, I think it's gonna be delayed is we're gonna see people that turned into rentals, rented it out for a year, maybe two.
And then they're like, ok, it's just not worth it anymore. It's not worth the headache is what, what'll happen.
you know, so I think that's where we'll see some adjustment.
Yeah, that's, that's a great point. That's, that's an excellent point.
So, inventory is kind of flat hoping it'll start to pick up.
you know, but like the one, the one I'm, I'm, I've got a listing going live, this weekend, but it's a situation where she's 86 and it's time to move her, you know, closer to the family and that's why they're selling, not necessarily wanted to, but it's just, it's, it's that time for her, you know, she can't live on her own anymore.
You know, it's a beautiful town home, two story town home, you know, and they're just too worried about her falling and getting hurt and stuff like that.
So, it's not a necessity or it, it's, it's not a want to, it's a necessity situation. Yeah.
Yeah. Yeah, exactly. And I think that's what we're, most of the listings we're seeing right now.
That's what we're getting
overall. Yeah. You're getting people that have to move like something I is impacting where they don't have an option not to move.
Yeah. And then, you know, at our average days on the market, you know, we're still holding up there, you know, in that 60 range.
So we did see that drop, which of course, I think was due to the, due to the interest rates, dropping.
Yep. But I just, I pulled this up this week because I just wanted to take a look at February numbers doing comparisons year over year.
You know, because last year was a totally different market.
And it's interesting to, to actually look at this, you know, because inventory wise, we're, we were up 140% over 2022.
You know, we actually had more homes going on the market though than currently. Why was that?
Because you knew you could sell your house in a day
And you were gonna get a phenomenal and it was gonna be a, everybody was going to jump to bid on it.
So your house is worth 300. You knew you had a shot to get 350.
Yeah, exactly. Exactly. You know, average price we're up about 9.3%.
But, you know what's interesting is we're starting to get away from that, the peak.
So you're gonna start seeing this number drop down over time. Medium price really?
Isn't that much different though. Yeah.
But look at your volume, you're about 300, million left and then your average days on market, we've, we've more than doubled, average days on market.
Yeah. So this, I mean, you look at this and you, it, you realize, man, it was a totally, It's a total different.
A, yeah, one
100%. It was
12 months ago. Tear different. So, everything's the way you approach. Everything has got to change. Yeah,
exactly.
So, keeps us on us, keeps us on our toes.
Always gotta stay on our toes. That's just the way it is.
Listen, I know you're on a tight schedule today.
Yes. Yes. I'm actually sitting into what is like a, a closet.
it's a small office but, I'm actually teaching a class and I was supposed to, my business partner is teaching the first half and I got the second half.
so I appreciate it, but I wanted to be on this.
I think we had some good info different. Like, we had like, different.
It's, you know, the energy was different this week, right?
Like, you know, kind of followed Powell's energy this week.
I almost, like, I was like, like, but
you wanna bring, you wanna bring good news, but you also got to bring the truth and reality to the market and we're, we're just kind of innocent and wait, you know, rates are holding good.
You know, it's, it's not a bad time.
You know, inventory levels could be a little bit higher, but I'll tell you what, there's some builder incentives out there that are just knocking the socks off right now and price reductions and their price reductions are, are amazing.
So there's always opportunities always. So, hey, listen, take care. Have a wonderful day, everyone.
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