The Gambler…
Kenny Rogers’ 1978 hit song “The Gambler” may very well portray the current US consumer. You need to know when to buy (Hold Them) and not to buy (When to Walk Away or even Run), which seems to be the theme in the US. The American consumer is not slowing down their buying habits even though, excluding home mortgage and auto debt, we are at their highest personal debt levels in history. Personal savings rates are at their all-time lows. The reason is that they have available credit on their credit cards and are using them at a record pace. Be it credit cards at over 20% interest or refinancing their homes and trading in their 3% mortgages for a 7% mortgage cash-out refinance…The American public is not slowing down their buying habits as reflected by last week’s retail sales numbers despite signs that the economy is on the verge of a slowdown…recession? Work hours are being reduced, unemployment shows signs of rising, and businesses are consolidating positions.
It does not surprise me that the Federal Reserve is hesitant to start cutting rates. The average US citizen has not slowed down their retail purchases, which keeps prices, in my opinion, elevated. Their FED moves have slowed inflation until recently at a reasonable pace. But that pace has now slowed, and reaching their 2% target will take longer until they begin to see prices move to lower levels, which will NOT happen until spending slows, and that will not happen until more and more folks reach their “credit” limits which will most likely cause an even bigger problem down the road.
I believe the day is coming when we will begin to see retail sales slow, unemployment will rise, and prices will fall, which will start the Fed cut “train” and begin rolling down the tracks. The chances of a FED cut in May are now under 50%. This will likely keep mortgage rates at 6.75% to 7.5% for at least 60 days. I wish I had seen it differently, but the signs are pretty clear: we will live with these current mortgage rates for a little longer than expected.
The US consumer needs to know when to “Walk Away or even RUN” from a non-essential purchase, and if they want to buy it…pay cash and not spend $$$ they simply do not have. If doing a “cash out” refinance, I am not against paying off consumer debt, do it, but do not add to the problem and charge them up again.
Remember… the BEST RATE… IS A LOCKED RATE… with a float down… ask me about our program that allows you to lock your rate and then float down if rates move lower.
Make sure you (or your buyer) get pre-approved before looking at homes so we can determine if you are looking in the correct price range and have you armed to submit an offer with a pre-approval letter!
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Blog post date: Thursday, April 18, 2024
