Benchmark Happenings

The Great Rate Debate: Navigating Today's Mortgage Market

• Jonathan Tipton, Steve Reed & Christine Reed • Episode 49

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Navigating today's mortgage market doesn't have to be overwhelming. Steve Reed of Benchmark Home Loans joins us to cut through the confusion with straightforward talk about what's really happening with housing inventory, interest rates, and smart loan shopping in 2024.

The real estate landscape has noticeably shifted from the frenzy of 2021-2022. We're seeing about 20% more inventory compared to last year, with homes typically staying on market for 30-90 days instead of hours or days. While this feels dramatically different after the pandemic market, Steve explains it's actually a return to historical norms. Properties priced right and in good condition still move quickly, while overpriced homes or those needing significant repairs linger longer.

Interest rates present perhaps the biggest source of consumer confusion. Steve dismantles the myth of "the rate" by explaining how your personal mortgage rate depends on at least 27 different factors including credit score, down payment, property type, location, debt-to-income ratio, and intended use. While average rates currently hover between 6.5-6.75%, the good news is they're trending downward as inflation stabilizes. 

One of our most valuable discussions centers on rate shopping and the potentially deceptive practice of advertising rock-bottom rates without disclosing required points. Steve breaks down how paying points works mathematically - showing that on a $300,000 loan, the difference of 1/8% in rate equals merely $24 monthly (or "two Starbucks lattes"). This perspective helps frame the true value proposition of working with knowledgeable local lenders versus chasing marginally lower advertised rates from big-box lenders.

First-time homebuyers receive special attention as Steve emphasizes their need for education, certainty, and guidance through the biggest purchase they've likely ever made. When every dollar counts, having clear expectations about down payments, closing costs, and monthly obligations becomes crucial. The value of working with experienced professionals who provide transparency and personalized service far outweighs potentially saving a few dollars monthly.

Ready to explore your mortgage options with professionals who prioritize education and transparency? Connect with our team today to discuss your specific situation and goals.

To help you to navigate the home buying and mortgage process, Jonathan & Steve are currently licensed in Tennessee, Florida, Georgia, South Carolina, and Virginia, contact us today at 423-491-5405 or visit www.jonathanandsteve.com.

Speaker 1:

This is Benchmark Happenings, brought to you by Jonathan and Steve from Benchmark Home Loans. Northeast Tennessee, johnson City, kingsport, bristol, the Tri-Cities One of the most beautiful places in the country to live. Tons of great things to do and awesome local businesses. And on this show you'll find out why people are dying to move to Northeast Tennessee and on the way we'll have discussions about mortgages and we'll interview people in the real estate industry. It's what we do. This is Benchmark Happenings, brought to you by Benchmark Home Loans and now your host, christine Reed.

Speaker 2:

Welcome back everybody to Benchmark Happenings. And we thought this time we would do a market update. So I have Steve Reed with us with Benchmark Home Loans, steve, welcome.

Speaker 3:

Thank you, happy to be here.

Speaker 2:

I'm glad to have you here. It's hard to pin you down, but you know we do. This is Benchmark Home Loans, this is Benchmark Happenings, and we do talk about a lot of great things in East Tennessee and a lot of awesome businesses, but I thought it was about time that we need to educate people who listen, hear about the current purchase market and as well as how buyers can shop for a loan. How do you think about that?

Speaker 3:

I think that's great and since you're on the topic of awesome businesses, you know I can't think of a more awesome business than Benchmark Home Loans. I mean, we've been here for a long time and we do things the right way. We love on our customers and care about our customers, and so thank you for that, Thank you for having me and hopefully this will. 15, 20 minutes worth of information will help a home buyer first time home buyer move up home buyer, whatever the case is, and so happy to take the time to do this.

Speaker 2:

Thank you. Well, I think it's well worth the time, and I think that. So, steve, let's just sort of start with how would you describe the current market in terms of inventory? We've talked about that in the past. We know things are changing and the amount of time that homes are staying on the market compared to last year.

Speaker 3:

Wow, that's a great question. Yeah, the inventory is a bit of a moving target. It is a little different than this time last year. I mean, we're starting to see, although the spring buying season is up on us.

Speaker 3:

So we're starting to see some changes there. But I can say the first couple of months of this year we started seeing a few more homes come to market and a few more homes stay on the market a little longer. So I think everyone got spoiled over. You know the 21 and 22, the COVID years, and you know, hey, I'm going to sell my house, I'm going to put it on the market today and I plan on moving tomorrow because I have a contract before the end of the day today and so it's almost I don't know it's unrealistic expectations now, because we got kind of conditioned to that market and now we're almost just back, if there's any such thing as normal these days. But the market is maybe a little bit more normal as far as a house is going to stay on the market, you know 30, 60, 90 days now, and which is not unusual historically but for what we've seen the last couple of years it is unusual. So a little bit different feel to the market. Homes are still flying off the shelves if they're priced right when they go on the market.

Speaker 3:

It seems to me what's sitting on the market longer, which will always be the case, are just those houses that might be overpriced and we also get a lot of houses that go under contract, that have some issues when you get to the home inspection and that kind of thing.

Speaker 3:

So I would say overpriced houses or houses that are in need of some repair, you may end up holding on to those just a little bit longer.

Speaker 3:

So to speak, to the inventory issue, we've got about 20% more inventory now than we did a year ago, and so it would make sense that any home that or if you look at the overall kind of the global picture of this thing, if houses are staying on the market longer, it gives time for inventory, to kind of the global picture of this thing. If houses are staying on the market longer, it gives time for inventory to kind of backlog a little bit more. So it would make sense that we've got about 20% more houses on the market, more homes on the market just from the fact that they're staying on there longer. And there's also, I think, a lot of people are ready to move. You know, either move up, move down. Maybe they had a growing family, they didn't want to let loose of their 3% interest rate, but they're just tired of waiting for rates to go back down, and some people are ready to make a move, so I think you could see some things break loose this year.

Speaker 2:

Right, right, well, and we always know, in an election year things change, right, right, well, we always know, in an election year things change and we've got much more positive outlook with the economy and the home buying market. So we hear a lot about interest rates and a lot of people like to post about interest rates. So I'm just going to ask you, because I know that you watch the market, you truly understand it, and so what is an average interest rates and where are they trending?

Speaker 3:

Yeah, well, thank you for saying average. We get a lot of calls. Clients will say, hey, what's your rate? And it's almost laughable because there's not a rate. Okay, there's a rate for you and there's a rate for the next guy Because there's 27,.

Speaker 3:

I think different factors that go into determining one's interest rate, such as down payment. Where's the property located? What type of property is it? What are you going to use the property for? Is it going to be your primary residence or investment property? What's your debt income ratio? What kind of reserves do you have? So, what's your credit score? Well, that's the biggest one. I was about to leave it out. So, thank you. So all those factors play into a rate.

Speaker 3:

Now for average rate, and a good thing to do. You can Google average mortgage rate for state of Tennessee and, believe it or not, that's pretty accurate. We look at that and we help our customers with that that want to keep up with the rates, and that's a really cool thing to do. Normally, when you look online, you're going to have these big box lenders. They're going to post their low rock bottom rate, but they're not going to tell you you're going to pay 3% or 4% or 3% or 4 points to buy that rate down. But if you just Google average interest rate for Tennessee and look at Google's answer, it's actually accurate and we're normally a little bit lower than that. We're normally a little bit lower than average. So, to answer your question, an average rate right now is about six and a half to six, and three quarters.

Speaker 2:

So it has come down. I mean, we were looking at seven, seven and a half, eight percent. Yes, it has A couple of years ago, last year but so it is coming down.

Speaker 3:

It is coming down. We're starting to see, I mean, in the previous administration I mean we had, there's nobody that can really deny that inflation was kind of out of control, and so that's not something you fix in a day when you look at I mean everything we consume.

Speaker 3:

Um, oil prices play a part. I mean everything's. There's oil in the mix somewhere. If you're buying a shirt or if you're buying anything, it's really you know it has to be transported and all that. So you know oil prices were up. I know we were paying more at the pumps. You know egg prices went crazy. Of course they've since, you know, started trending back down and so you know our food and energy prices were way up. That drives interest rates.

Speaker 3:

Now that we're starting to see the inflation kind of settle down and head in the other direction, it is going to trend rates downward and I'm as impatient as anyone. But it's not something that's going to happen in a day or two or a week or two. We're going to see. Some days rates are going to go up, some days they're going to go down.

Speaker 3:

But I tell my clients, look at it like a stair step. You know if you draw a line, which way are they trending? Are they trending up or down? And they're definitely trending down. But that's not to say come Monday when the market changes, or you know, we may be up a little bit Monday, but overall we're looking pretty good. You know we're in the mid sixes. I think buyer demand will go up significantly once we get under that 6% mark, which we can get under there now by paying some points. But you really want to talk to a lender that knows what they're doing, because it's not always a good idea to pay points. We love to take your money as a lender, but it's not always smart to pay a lender your money.

Speaker 2:

So that goes back to. I think, Steve, it would be helpful for today, when you talk about buying down, so box stores quote these rock bottom rates for people and it's really deceptive. It's a way to pull you in. Then you talked about how you can buy down with points. What does that mean exactly?

Speaker 3:

Yeah, okay. Well, so let's just say I can provide you a rate. Say you got a high score. I can provide you a rate of six and a half today with just standard closing costs, such as appraise on all your normal stuff, but nothing extra tacked onto your closing costs in the rate six and a half. Let's say your loan amount is300,000. If you'll pay me 1% more, which is $3,000, ie points, then instead of a six and a half rate I can give you a six and a quarter rate. That's just an example.

Speaker 3:

Now that six and a quarter rate may lower your payment by $30, $40 a month. I don't have the math with me, but it'll be close. So the easiest way to figure that is take that $3,000 that you've just paid, divide it in, let's call it $30. And how many months do you have to keep that loan to get your money back? And so you want to get your money back within about 12 to 18 months, because within 12 to 18 months rates may go down. You may be refinancing again.

Speaker 3:

So you just don't want to pay too many points out there and it takes too long to get your money back. So in a declining market like we're in, I don't recommend paying a lot of points. Now, sometimes to pay one, you can maybe even do, maybe even do better than a quarter and it's a better deal, so sometimes paying one. But I get a little nervous when my clients want to start paying two and three and four points. Because you know, if you pay six, nine, $12,000 and you only keep the loan 12 months or 18 months and rates say go to 5%, you're going to refinance.

Speaker 1:

You've just lost that money pretty much just to have a slightly lower payment.

Speaker 3:

So you have to be extremely careful with what you're paying as points. So you really want a lender that will be very transparent in that process, and I'll give my. I used to, didn't do this. I used to just say, no, you don't want to pay a point, or you don't want to pay two points, here's the rate. And then, lo and behold, someone will go home tonight and see a rocket mortgage ad that advertises 5.99, but don't say anything about the points. Right, so maybe in the fine print, but who reads that? And so then they're like I'll see him next year. Why didn't you get a loan from me? Well, you didn't offer me a five, nine, nine? Well, yeah, I could have done that. It just wasn't in your best interest. So it needs to be a transparent process to where people understand what they're paying.

Speaker 2:

Yeah, so I appreciate you sort of clearing that up. So I'm going to ask you a really tough question how do you feel about a buyer shopping for an interest rate?

Speaker 3:

I hate it. Don't do it, just come to us. Yeah, that is very it's commonplace now, and if they're going to shop, I want to help educate them on how to shop smart.

Speaker 3:

And just what I just told you, with the transparent process and understanding how points work and make sure, based on their situation, how long are they going to live in the house? Do these lenders they shop with even ask that question? You know, are they even? Do they even care about them enough to ask them any questions? Or are they just going to quote a rock bottom rate? So that comes from trust, and you know I was thinking about this the other day. It's like, you know, you could come to me and I might quote you a rate that's an eighth or a quarter higher than you're going to see on Rocket Mortgage. Sorry to keep using them, but they're just one of the big box places. So maybe my rate is slightly, slightly higher, maybe it's not we're real competitive with them is slightly slightly higher, maybe it's not, we're real competitive with them, but let's just say my rate's a little bit higher and so you're not going to get the use of my services because you're going to use them to save that little bitty amount.

Speaker 3:

I kind of equate that to. You know, going down to the hardware store, you know you can order that same wrench online and maybe save 10 bucks on it, right, okay, where are you going to wait on that wrench If it's the wrong size, don't work, not what you needed, you got to send it back. Or you can go to the hardware store and talk to the very nice gentleman at the hardware store that's going to probably educate you on wrenches and you're going to get the exact one you want, and you might pay 10 bucks more for it, right? Where are you going to be the happiest at the end of the day when you've got the knowledge that you know not only that you think you've paid 10 more dollars for it, but by the time you ship the other one back, maybe you have to pay for shipping your time's worth something. So what have you really saved, right?

Speaker 3:

So I think, clients that don't do business with us, it's like skipping the hardware store and buyer beware they're going to these big box places and they don't really know what they're getting and sometimes it works out. Many times it does not work out great for them and they really don't. It's just, I don't know. It's like, you know, when you're dating someone and you decide you don't like them, well, you don't know what you missed out on. Maybe they might turn out to be the best person in the world and make tons of money. Right, they might be a multimillionaire, so but it's like missing out on something when they don't come to us and get that education and they don't get asked those right questions because they're just putting so much emphasis and weight on what that rate is. And an eighth and a quarter of a percent is really nothing, because in the end.

Speaker 2:

Put that in a dollar amount, say an eight, I'm going to. So I've called you up, steve, because my family member. You did the loan for them and they loved you. It was just a great process and I've called you. We've spent time together, you've educated me, you've walked me through the process and I feel really good about you know making a great decision. I put in for the loan, you start the processing. I call you up next week and say hey, I just found a rate that's a quarter of a percent, eighth of a percent less. Can you match that?

Speaker 3:

Yeah, okay. So while you were talking, I went ahead and calculated that. So on a $300,000 loan, an eighth of a percent is about $24, right $24.

Speaker 2:

That's like two Starbucks lattes.

Speaker 3:

Exactly so it's not that much. But what's really even more important than that is, at the end of the day, if I've helped you strategize on when to lock your rate that eighth of a percent you think you're paying more. If we have the right strategies and we watch the bond market and we know what's going on you might end up getting locked an eighth of a percent lower than what that other company promised you, based on when you need to close and how tolerant to a little bit of a gamble you are. If you're not locked but so we could strategize so you might just think it's an eighth higher if you're not locked but so we could strategize so you might just think it's an eighth higher, but you're going to end up lower with us.

Speaker 3:

Some of our other fees might be lower. You know when we see the market changing, we may wait an extra hour or two to lock you, and you know you benefit from all that. But unless you're in our system and unless you trust us and unless you agree to move forward with us, you're never going to know any of that and so. But we're not going to be one of those lenders. It's just going to go in and give you the low ball price just to reel you in.

Speaker 3:

We're going to kind of give you, to our own detriment. A lot of times we're going to give you worst case scenario and we're going to under promise and over deliver every single time, absolutely. But you don't know what you don't know. So if you move on to one of these dot-com companies online, if you're going to shop, make sure it's somebody that's asking you questions, make sure you trust them, make sure they understand what makes the bond market move. They understand how inflation affects rates. They know what economic news is coming out when it's coming out.

Speaker 3:

I guarantee just those two or three questions. If you called up any lender around and asked them those questions, they wouldn't know the answer. So that'll be your answer for you. When you call them and they can't answer those questions, I said a column up and saying what's your rate? That's the easiest question to answer in the world, because they're just going to give you the lowest rate with the high score, with all the metrics that are perfect, and then they're going to start a little bit of a conversation because they've already got you roped in. So be very, very careful of that.

Speaker 2:

Yeah, I think that's really good advice. So, speaking of advice, let's talk a little bit about closing for the first-time homebuyer crowd. What advice would you give to that first-time homebuyer?

Speaker 3:

Yeah. So they need more direction and I truly believe move-up buyers need just as much, because this is just not a process you do every day or every month. You might do it four or five times over your lifetime, or two or three, but first-time homebuyers especially need the education. I had a conversation with a gentleman yesterday trying to help his son who was going to our biggest local credit union in the area and he was very dissatisfied with their service. They wouldn't offer any kind of education. They're just like here it is, you know, kind of take it or leave it, and uh, was not really directing him or showing him the correct path forward.

Speaker 3:

So, as a first-time homebuyer, run from that Get with companies and there's other good local companies. We're not the only one, but we feel like we're one of the best. We used to think the local companies was our competition. It's really not. We've got some. The local companies was our competition. It's really not. We got some decent local companies. But the competition now are these big box stores that are going to lower the rates to just unbelievable levels and then they're going to do a bait and switch when you get in. A lot of times you're not going to get that rate, but you're going to get no education.

Speaker 3:

So first-time homebuyers need to get with somebody that someone that will hold their hand. They need a really good real estate agent that will hold their hand, which we can recommend if they don't already have one, we can recommend. We work with a few good, really good agents and it's a team process. It takes a village for a first-time homebuyer because they're scared. A village for a first-time homebuyer because they're scared. Every penny counts. It's not like you can just call them up and say, oh yeah, we forgot to tell you about that $300 you need, or $500. Every penny counts.

Speaker 3:

They need to know, they need certainty. In a word, it's certainty. They need to know what am I going to be expected to come up with at closing for a down payment, for my closing costs? What are my payments going to be? They can't handle surprises and because most of them have lower incomes, they're starting out, you know, and so we have to handle them with kid gloves, but we have to make sure that they're prepared for the biggest purchase they've ever made and maybe ever will make until they buy their next home.

Speaker 3:

So it's a real serious thing. It's not like some clerk setting in Iowa can tell you over the phone that's just got out of college, that's not in the advice business like we are, or the education business. So it's a scary thought for me that a first-time homebuyer would even look online to get their mortgage. Now I'm not saying don't shop. I mean I would prefer they don't if they get with us. But if you're going to shop, do it before. But once we get with them and they commit, that's time to stop shopping and it's time to start packing you know and getting ready to buy the home.

Speaker 3:

So, first-time homebuyers, just don't be wishy-washy, you know. Decide on your lender, get a lender you trust, get a real estate agent that you trust and then worry about other things that are important, but don't keep out looking to try to find an eighth of a percent better rate that might save you $20 a month that you might end up paying way more for, just like the hardware store. So get good information, and we have that here.

Speaker 2:

Yes, I think too, when you're making decisions in life and and like a purchasing a home, it's the largest financial decision most people will make. But it's also, like you know, if you don't have clarity, if there's confusion as you're going through that process, something's wrong yeah, and a lot of times confused.

Speaker 2:

Clients don't purchase, don't purchase, run or or or or they might be with someone that doesn't, or a box store, whatever that they could. They don't get the best product for them that really suits their needs. So, steve, this was really good. I really appreciate you taking the time to be here today and talk about the market.

Speaker 3:

Does that mean, you'll have me back. Of course yeah, I enjoyed being here.

Speaker 2:

Thank you, Steve.

Speaker 1:

This has been Benchmark Happenings, brought to you by Jonathan Tipton and Steve Reed from Benchmark Home Loans. Jonathan and Steve are residential mortgage lenders. They do home loans in Northeast Tennessee and they're not only licensed in Tennessee but Florida, georgia, south Carolina and Virginia. We hope you've enjoyed the show. If you did make sure to like, rate and review. Our passion is Northeast Tennessee, so if you have questions about mortgages, call us at 423-491-5405. And the website is wwwjonathanandstevecom. Thanks for being with us and we'll see you next time on Benchmark Happenings.

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Contributor

Christine Reed

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Jonathan Tipton

Co-host
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Steve Reed

Co-host