[00:00:05] Speaker A: Welcome to the Short Term Show. The show about short term rentals and long term wealth with real property owners hosting real properties who are crushing it in the vacation and short term rental space.
And here's your host, Avery Carle.
[00:00:29] Speaker B: Hey y'. All. Welcome back to another episode of the Short Term Show. Before we get into today's episode, I would like to remind you that we are hiring in a number of markets that I do not have written down. So I'm gonna miss some. But we are hiring in the smokies, the Destin 38, Panama City beach area, Orlando, the Outer Banks, Branson, the Poconos and Park City. So if you're an agent, any of those areas, think you maybe want a job, email us at careers at the short term shop.com and now we are going to talk with our mortgage company. My partner in the mortgage shop, she runs it. I'm just a partner.
Brenna. Carl's not Carl. We are not related.
And we're going to talk about what's going on with mortgage rates right now. Looks like one of the Fed governors just got fired. And you know what's, we're not going to get super political, but I was kind of interested to see if Trump is going to just inch closer to firing Jerome Powell by firing people around him. Who knows? Anyway, Brenna, how's it going?
[00:01:31] Speaker C: Good, thank you for having me.
[00:01:33] Speaker B: Yeah, thanks for coming on. So let's talk about, we had the Jackson Hole Fed meeting last week and Powell has finally said, oh, it looks like we might be ready to lower rates here sometime soon. He still kind of did a roundabout talking about it wasn't super direct. But what are your, your thoughts on that?
[00:01:52] Speaker C: Yeah, so we, the market reacted really positively to that. So him saying that just started to have rates decrease slowly but surely when he said that they kind of have been decreasing slowly this entire year.
Just last year, I think, you know, just to give an example, right, last year in 2024, people were locking in loans and investment loans at like 8.125%.
Well now you can see them in the high sixes, mid sixes now. And so they're slowly trickling down.
Even DSCR loans, which is the popular loan right now, are in the mid sixes, six and a half percent, which is unheard of. We haven't seen those types of rates in over three years.
Now. How the Fed, how we react to the Fed's meetings and, and what Powell says and things like that. We anticipate the market. And so he's got what two More meetings this year where they will most likely decrease rates each time.
If I had to bet it would be a quarter of a percent or 0.25% each time, he could feel froggy with the pressure that is being put on him and do a half a point instead of a quarter.
Maybe one meeting he'll do a half a point and then the next will do a quarter. And I think that's the most that we will see this year, but it will continue to trickle on into 2026.
With that being said, anytime they mention that they're thinking about lowering rates, the market reacts positively for mortgages, vice versa. Like two years ago when they he said that they were going to increase interest rates, we actually negatively. Right.
We anticipate what the Fed is going to do. So if you see rates start to lower before the Fed meets, that's a good indication that the Fed is probably going to announce lowering of interest rates.
If you hear, if you see that rates are increasing right before a Fed meeting, it's because they are probably going to remain the same or possibly increase interest rates. The reason why we do that before they meet is because the stock market buys essentially you sell these loans to the stock market in a little package, like a little present with a bow, and if they're not priced correctly, you're not going to be able to sell them to the secondary market.
And people aren't going to be able to invest in them like Fannie Mae, Freddie Mac. They're not going to back them because they're not good interest rates at the time.
So we have to anticipate what the market is going to do, what the Fed is going to do, and that's how rates are kind of determined. So I'm going to stop right there to see if you have any questions, and then we'll move into what kind of impact or what has impacted in the last six months. The rates continuously trickling down.
Yes.
[00:04:51] Speaker B: So a few questions, but I will say so right now we're at the lowest rates, or as of yesterday, when I checked, the lowest rates we've seen in about a year.
And do you think so also? Let's actually just back up and explain to people who may not be as familiar with how this works, how the Fed rate indirectly affects mortgage rates. Because when we say the Fed rate and when we say mortgage rates, those are two different things.
[00:05:20] Speaker C: So a lot of times the Fed rate doesn't impact mortgage rates because we anticipate what they're going to do beforehand. So we already kind of you know, cushion those rates or decrease those rates in preparation. And so when the Fed comes out with numbers saying decreasing rates or increasing rates, our rates really will remain unchanged just because we have to anticipate that to sell to the secondary market.
And with that being said, let's say Powell decreases interest rates next time our rates will kind of remain unchanged because we are already anticipating that our rates decreased Friday. They decreased again today at the beginning of the week.
And so that's just a good indication that they are going to lower those interest rates.
[00:06:06] Speaker D: We have live one on one coaching sessions available with our wonderful top notch coaches at Short Term Shop plus. And we would love to help you in your vacation rental journey.
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[00:07:08] Speaker B: So when, when's the next Fed meeting?
October. September.
[00:07:12] Speaker C: September. Okay. Yeah. My birthday.
[00:07:16] Speaker B: Happy. Hopefully that'll be a happy birthday.
[00:07:18] Speaker C: Hopefully it's a happy birthday.
[00:07:22] Speaker B: So let's talk about what the mortgage rates do when they do announce that the rate, that the Fed rate is going to be lowering. So is, are they going to make an announcement and then the mortgage rates drop or how does that typically work?
[00:07:36] Speaker C: Mortgage rates drop and then they'll probably make the announcement.
If for some reason he does something drastic and drops it like a point or something, then you know, you will start to see rates change at that point.
Could be positively or negatively, it depends on how the market reacts to it.
But we change interest rates. Essentially lenders, wholesale lenders change their interest rates prior to the Fed meeting because those loans are already in process. Right. And so if those loans get locked in at a lower interest rate than should be, then we can't sell it to the secondary market. So we kind of have to anticipate what the Fed is going to do. Now sometimes we get it wrong and we are totally shocked. And then rates like could plummet, you know, the day after the Fed meets or the, the day of, or they could increase slightly the day of the Fed meeting. And so that's why it's always important to have lenders that know the market and know the secondary market and how these interest rates work to guide their clients in.
Let's float the interest rate right now or let's go ahead and lock that interest rate right now.
[00:08:40] Speaker B: So how does the 10 year yield affect the rates? Because a lot of people when they're talking about mortgage rates, they talk a lot about the 10 year yield. So for those who may not be familiar, how does that also play into mortgage rates?
[00:08:52] Speaker C: Yeah, so we follow mortgage rates, follow the ten year treasury historically pretty closely. And so once the ten year, if the ten year treasury comes back and it is, you know, decreased in cost, for example, our rates will decrease in cost a little bit. If it shows an increase that day, our rates will increase in cost a little bit. It takes a lot though for the actual interest rate to decrease.
It would have to go down like a half a point, you know, a decrease in a half a point in the 10 year yield to show any decrease in interest rate. So you have to understand that there's the interest rate and then there's the cost of the interest rate for that particular product.
And so you will start to see the decrease in cost for that rate where it might not cost anything at that point and then it would continue to lower where now you're going to get a lower interest rate or if the market has increased, the 10 year treasury has increased, you will see the cost of the rate increase or then you'll start to see a higher interest rate for what you could have gotten a lower, the same lower interest rate the day before.
So that's what we follow. And every morning it comes out around 9am we do follow that a lot of times. They'll correct it throughout the day depending on what's happening, whether we get the non farm payroll numbers in unemployment claims. And we can start to go into that if you want, about how that affects rates as well.
[00:10:21] Speaker B: Yeah, let's talk about that. And then also kind of tie it into what you see potentially happening the.
[00:10:26] Speaker C: Rest of the year with it. Yeah, so it's not just if Powell lowers or raises interest rates or who the political parties fire or who they don't fire.
It is putting pressure on him though to look at it more in depth with these numbers.
So it goes off of many things like inflation and not just the, like the cost of goods, it's the actual rate of spending. So like the core inflation, the rate of how we as consumers spend. So that's what really impacts interest rates as opposed to the prices of goods. Going up. So you have to understand that. And then it also goes off of unemployment claims or jobless claims, which is unemployment numbers, as well as non farm payrolls, which just means like your general W2, you know, employee.
And the last couple of readings that came out with inflation was lower than expected. So like the, the price, the rate of people spending has come down.
Student loans and stuff have become, started to default because they've become due all of that. All of these negative things unfortunately are good for interest rates.
The unemployment numbers came back higher than expected. Non farm payrolls came back lower than expected.
So all of these things are good for mortgage rates because that means the economy isn't doing that well. So that means these long term mortgage rates. So mortgages that are 30 years, not like credit cards or auto loans, will start to decrease in interest rate whether the Fed decreases rates or not.
[00:12:10] Speaker B: Okay, that makes sense.
So employment's moving, it appears, in the right direction. Inflation is kind of sort of moving in the right direction.
So what I don't want to ask you to make a prediction, but do you see rates continuing to. Mortgage rates, excuse me, continuing to trickle down? I think we're at 6.55 right now for conventional. Do you see those continuing to trickle down? How confident do you feel about that? Or do you see still some kind of fluctuation like we've seen the last few years?
[00:12:44] Speaker C: I think we'll start to continuously see rates going down as long as the economy is performing like it is. So if we still see student defaulted loans, if we still see increased jobless claims, the rate of spending has decreased drastically by consumers on top of the, you know, political parties pressuring Powell, him lowering interest rates. I think we are going to continuously see a trickle down into 2026 and you will start to see rates drop over a period of time. So it's not going to be drastic. But now that like for example, right now it's kind of trickled down. Right. But if you look at today's interest rate at six and a half versus last year's interest rate at 8.125, that's drastic, right?
[00:13:31] Speaker B: Wait, that was last year?
[00:13:33] Speaker C: Yeah, we, I've got some loans that we locked in last year that were at 8.125 DSCR that can now refinance at 6 and a half percent.
[00:13:41] Speaker B: So we're only a year out from 8% mortgage rates.
[00:13:45] Speaker C: Yep.
[00:13:46] Speaker B: Wow. Maybe it just seems like so much longer for me because it's been so incredibly painful.
[00:13:51] Speaker C: Yes, it has.
Yeah.
[00:13:53] Speaker B: Wow.
[00:13:54] Speaker C: Okay. You know, the SDR loans like that last year and so conventional wasn't that high, but it was in the mid sevens, you know, and so still, it's still drastic when you look at it over a long period of time as opposed to last month or three months ago.
Okay.
[00:14:08] Speaker B: That just provided me some much needed perspective on the market because I was thinking, you know, we were 2, 2 to 3 years out from those 8% rates, but that was just last year.
[00:14:20] Speaker C: Wow. Yes. Okay.
[00:14:22] Speaker B: I should be a little more thankful.
[00:14:26] Speaker C: Yeah, it's going in the right direction and it's going to continue to go in the right direction for 2026 as well. From what I predict now, they don't, you know, if I was the number one predictor, I'd be making a lot more money than I am now. But I haven't really been wrong yet on our predictions because I do look at the statistics and data on it as opposed to hoping and wishing.
[00:14:52] Speaker B: Yeah, I, I do think we're kind of towards the end of it. I think they've done what they set out to do kinda. And in terms of restrictive monetary policy and the real estate market really is dead. And I've been saying that for two years now that the real estate market is the worst it has been in the last 30 years. And people on the Internet just like to yell at me and say, no, it isn't, you know, people can't afford houses. And I'm like, I'm not talking about how many people can afford to buy a house. I'm talking about how many homes were sold in the year in the calendar year. And more homes were sold in 2008, 9, 10 than 20, 23, 4 and 5.
So the real estate market has kind of ground to a halt. And only in the past, I would say quarter past, quarter to six months have news outlets actually started reporting on this.
And typically the first jobless claims that you start to see on these jobs reports are, are new. Our home builder like new construction jobs because if people aren't affording to buy the existing inventory, then there's not as much of a need for the home builders to build and they don't want to throw, you know, 20 houses on the market and let them sit there and then everybody's asking for discounts. So they're just not building, they're putting.
[00:16:11] Speaker C: A hold on building.
[00:16:12] Speaker B: So that's. People don't realize how tied into the larger economy the real estate sector is and the mortgage sector, to be honest. But we have seen purchase loan applications up, I think in the past month?
[00:16:27] Speaker C: Yes.
[00:16:28] Speaker B: And I don't know, my theory is that because it's honestly more important what the media is saying is talking about than what's actually happening. So this, we've been in this real estate market for three years, but only in the past few months has the media started talking about it. So, so then people have kind of started buying. So I think that now the media is talking about, oh, you know, things are starting to move in the right direction, looks like rates might start to come down. So people are jumping off the sidelines. And now this is the part where everybody's going to say, oh well she's a real estate agent so of course she's going to say that. I think between now and the end of 2025. So it's. What month is it? It's August, end of August.
I think that this is a window for real estate investors to be able to get good deals because we still have competition right now. We've seen, I think we are going to hit over double our volume in September versus our volume for August. So you know what you get under contract in July, in July, closes in August, which you get under contract in August, closes in September.
And so we're looking at over double just strictly in my opinion because people, the media has started talking about rates and people are getting off those sidelines and rates have started, you know, would they go down like 06 or something?.07 a lot. They went down quite a lot and a lot of people jumped off the sidelines. So this is my opinion that if the closer they get to 6, we don't need them to go to 2, we don't need them to Go 3, we don't need them to GO to even 5. The closer they get to 6, the more people are going to start jumping off the sidelines and buying things and driving those prices back up. So in my opinion, now's the time, end of 2025 to be able to get a deal.
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[00:19:16] Speaker C: Yes. And also the people, you know, investors that probably have already invested or people that are needing to offset some of the, the taxes they owe the IRS now that the 100 bonus depreciation is back, a lot of people are starting to just get in because of that. And they're getting excited with also lower rates that they can still make the numbers work for themselves.
We're seeing a lot of that as well.
And then I think you all as well as us is going to be very busy.
November ish. Because everybody's gonna be like, I need to get a property before the end of the year.
And so that's how it usually happens. But I think this year is going to be even more so than the last couple of years.
[00:19:56] Speaker B: Yeah, yeah. Everybody at the end of the year is like, oh my gosh, my CPA says I need to buy X amount of real estate so I can use that short term rental tax strategy.
So it typically does pick up in the last quarter of the year for sure.
Brenna, anything else about rates or the larger real estate market that we haven't chatted about yet?
[00:20:14] Speaker C: You think we need to go into probably refinances. I know a lot of people are sitting on those higher interest rate properties or they may have gotten their property a few years ago and they're holding on to that lower interest rate. I just encourage them to look at the numbers and see if it's worth refinancing. If you're trying to get equity out and that's like the main reason to get that equity out and not let it just sit there, people are saying, well, my payment's so low because of my interest rate. I'm scared because it's going to increase. Well, you have to think you're going to refinance. And what that means is you're taking that debt that you owe and anything you want to add on to it, cash out. And now it's going to be thinned out again over 30 years.
And so your payment actually might be lower depending on how much equity you pull out, how much the value is and the lower interest rate that you can get. You might be around the same monthly payment that you are right now and still being able to get that cash out to be able to put into other investment opportunities.
[00:21:23] Speaker B: Okay, love that. Always love being able to get a better rate.
I've had a few clients mentioned to me already refinancing out of 8% rates. So that's nice. Nice. We can do that because we haven't been able to For a while.
[00:21:39] Speaker C: Yeah. I quoted one of our previous clients or I guess not previous, but the short term shop in ours, current clients and they were at an 8.125 beach house and their rate now would be like 6.499 DSCR.
So that's, that's a crazy, a crazy jump for them. Yeah. Wow.
[00:22:03] Speaker B: Do you, do you have any recollection of how much lower their payment would be?
[00:22:07] Speaker C: It was going to be $2,000 lower. I think it was a large, a large beach house property. Okay.
[00:22:13] Speaker B: Wow. $2,000 a lot though.
[00:22:15] Speaker C: Yeah, it was, it was a lot. It's in the Cape. Right. And so the, the value for his property has increased. They put a good chunk of change down for their down payment in the beginning and so just kind of like a win win, for example.
[00:22:32] Speaker B: Yeah. So that's an extra $24,000 a year without having to make, you know, any crazy updates or put any money into any extra money into the property. So you know, $24,000 a year found is.
[00:22:46] Speaker C: Yeah, sweet.
Yeah, it was, it was quite a, quite a bit. Now I can't speak to their insurance and everything going up, the homeowner's insurance, you know, for beach houses. But that's just an example that, you know, we can give you that. You know, even if it's a rate and term refinance to lower your interest rate, some people are pulling cash out and their payment has only increased by like $200 a month and they're pulling out 130,000 and equity.
It's a really good time right now to utilize that equity if you are needing it to put into other investments.
[00:23:20] Speaker B: Before we go, are there any, any loan products we should be aware of or paying attention to right now? Anything cool?
[00:23:26] Speaker C: The DSCR loan, you know, we have, we're blessed to have that opportunity to have a lower interest rate product for our clients that can close a true llc only that's not going to show your personal debt or income and a lot of people have been doing that. Another neat thing about it is it does not have to show 12 months of rental history. Let's say you just recently renovated it.
We can actually go off of the new appraised of value, do a cash out refinance on that. You a builder that just built a cabin for example, in the Smokies, they can do a cash out refinance for DSCR and you don't have to show history of rental income on those types of properties and can still do it and get out of, you know, a balloon payment or commercial loan with the bank and be able to still get that equity out of your property as well.
[00:24:16] Speaker B: All right, awesome.
So before we go, is there anything else mortgage or real estate market related that we should cover?
[00:24:27] Speaker C: Possibly, you know, you know, obviously don't insult the seller by lowball offers, but I do see a lot of these houses have been on the market for a long time and you know, that could possibly mean, you know, giving seller credits towards your closing costs where it's paying your closing costs and you're just coming in with your down payment. And just to, to keep you in mind, that is closing costs. So you can do 6% seller credits of the purchase price for a second home loan, vacation home loan, 3 to 6% for DSCR, and 2% for a conventional investment loan which goes off your personal debt to income ratio. So try to utilize those seller credits if you can towards your closing costs so you can possibly just come out with your down payment and still be able to get the tax benefits for this year as well.
[00:25:18] Speaker B: So Brenna's trying to be diplomatic and not get yelled at by a bunch of real estate agents by saying don't insult the seller, but go ahead and insult that seller. Make those low offers while you can while you have the.
Because right now we have time. That's the good thing about this market. As real estate investors, we have the time to negotiate. And if this person doesn't want to come down to where we need to, we'll go to the next house and the next house and then if we, if we strike out on all of them, then we can start coming back to everybody and seeing what, what we can do. So go ahead and make those low offers and you still rates are a lot better than they have been. But if you're able to pay some of your own closing costs and you, you ask for that, limit that 2% or 3% or whatever the lender allows and use that to buy down your interest rate. You can get the rate significantly lower. Not like a whole point, I don't want to say significantly, but you can get your rate even lower than they are now. So that's a strategy to think about too is coming in with your offer asking for the seller to pay your closing costs, but then instead of using that to pay just the loan costs, use that to buy down your interest rate. Because that's forever. You know, your loan costs are one time, but your interest rate is not forever, but it's until you can find a better rate. And so why not start off on the best foot you possibly can. So that would be my recommendation too.
[00:26:43] Speaker C: And for everybody that's waiting for the rates to hit 6% or what have you, your payment right now at 6 and a half percent. If you refinance right now and you're just kind of banking on those rates going down, but you really need that equity, you need to do the math or we can do the math for you to show your payment's only going to be maybe an $80 difference a month.
If you need that equity out where you really do need to refinance, go ahead and pull the trigger because once it hits 6%, you're not going to want to refinance again for $80 per month difference. So just keep that in mind, know your numbers, know what you need to to net per month and see if it makes sense for you right now.
[00:27:22] Speaker B: Great advice. And Brenna, if somebody wants to come refinance or get a new loan with the mortgage shop, how do they do that?
[00:27:28] Speaker C: Yeah, so you can reach out to us@brennamargageshop co not.com we were too late for the dot com and I've got my little tag there at financing short term rentals on Instagram. You can give us a call 800-816-7982.
Operators are standing by. No senior, very senior loan originators that work for us. White Glove service. And we'll help you out.
[00:27:56] Speaker B: Awesome. Thank you so much for coming on. And guys, we will see you next week.
Sam.
