Latest / Real Investor Radio Podcast / DSCR Rates, Refinancing Decisions & Market Trends
Transcript
- Hey, welcome to Real Investor Radio. I'm Craig Fuhr joined by Jack BeVier It's a very rare occurrence when we're in the same room together. And we wanted to do just a quick hit today on what we're seeing in terms of DSCR rates right now. I think a lot of people, Jack, where my thesis here is that a lot of folks have been sitting on the sidelines really for the better part of the year, waiting for Powell to make the cut. And you and I have been talking about this on the podcast for several months where we actually were expecting, you know, a later in the year cut, maybe closer to the election. That obviously happened on September the 18th. But, I went back and I took a look at the five year bond, which for those who are listening, DSCR loans are all indexed off of the five year bond. So, you know, the 50 percent basis cut, Jack, didn't necessarily correlate to you know, a 50 % basis cut in the five year. And in fact, on September 18th, the five year was at 3.47%. And since that time, and this is what we're here to talk about today, it's actually risen to about 3.9%, which is kind of the highest that we've seen almost all year, And so I wanted to get your take on that for folks who, you know, they're thinking about refining, they were waiting for it, and sort of, you know, how maybe the waiting for it may have, you know, they may have waited a little too long. Yeah, sure. So as the the Fed started to get inflation under control, one of the things they decided to do was to drop rates. the market the mortgage market reacted well in advance of that and mortgage rates were coming down two, three months ago. And so the the so the longer part of the curve, the the five year Treasury, the 10 year Treasury, the 30 year Treasury has already came down a couple months ago, before Powell even did the 50 basis point rate drop. So if you believe the Fed, we're going to see a continued decrease in short-term rates over the course of the next year. But that doesn't mean that the long part of the curve, the five-year, 10-year, 30-year rates are going to come down with that. Keep in mind, we've been in a inverted yield curve for many, many years. to get to a normal economy that needs to go like that. Well, so short term rates have to come down, but that either mean but you know, long term rates can stay the same as short term rate come down. Long term rates may go up as short term rates come down, but it doesn't mean just because short term rates are coming down does not mean that the long part of the curve is going to also come down. And so I think that's kept a lot of folks on the sidelines who may who you know, maybe may who should be pulling the trigger in my opinion. on doing refinances. Something that we're seeing in our real estate business is that showings are slow right now. Even with the decrease in mortgage rates of a couple months ago, that barely led to much increase in showing activity, if at all. And as a result, you know, there wasn't enough to really get the market going again. And so I'm nervous that, we're well past the spring selling season. We're going into the winter here and we're going into the winter and if, and investors who keep dropping prices begrudgingly, right? Sort of to catch the sale. Yeah, right. Exactly. Like that they're going to be catching a falling knife and that they're going to be trailing the market down and just frankly wasting money on carry throughout the course of the, throughout the course of the winter. And when, what they should have done, what we're doing in our real estate business is pivoting those properties that are selling slowly to rental properties, refinancing them with DSCR loans and, and live in to see another day replenishing cashflow. And cause I think that we're going to see better buying opportunities as a result of that on the as is pricing side of things, but you can only take advantage of that. If you've got, you know, if you've replenished your cash and you've got, you know, dry powder to work with. So did a little research prior to jumping on today and I was taking a look at the five, the 10 and the 30 year bond sort of started the year. I'm sorry, start of September, then on September 18th and today all three of those have risen. The five year bond is actually up about 45 to 45 Bips. The only bond that is not risen and actually has gone down is the two year. And my feeling is, you know what the bond market is always a future looking market, right? And so, you know, I still think that a lot of bond buyers feel like there's some volatility ahead. We've got a kind of a crazy election season happening. There's a lot of stuff going on geopolitical. Politically, the country has got $35 trillion of debt, adding another trillion every 90 days. And I just think that the bond market is saying, hey, we feel a little safer right now in sort of this murky, you know, fed time for a shorter term bond. And so that is the only one that is sort of held steady while the other three have risen fairly substantially since the 18th. So I think the thesis here is that, you know, look, it's time if you're seriously considering refining now is the time to get off the sidelines. Yes, we had a, unfortunately, the five year has gone up over the past week. Right. We had a we had a better than expected jobs report. You know, TBD on, who knows what the what the revision. might be. We've seen some big revisions this year in jobs reports. So, you know, who knows if this how accurate this one but was but but it inspired confidence in the market, which led rates to go up bad for DSCR, right. And then we had a CPI report today, this morning, actually, that was modest, but higher than expected. And that led rates to go up as well. So we've seen a 40 basis point increase. in the five year treasury over the course of past weeks week. And that's in you know, an environment where many are sitting on the sidelines saying, hey, I'm waiting for it to come down. It's definitely going to keep coming down. Well, I think that has a lot to do with it's the jury is very much still out on whether Fed, the Fed truly does have inflation under control, what the long term inflation rate is going to be, not to mention all the risks that you talked about, which need to be priced into the world. And I think it's not a controversial statement to say that it's a riskier world than it has been in the past and that we are going back down to 2021 interest rate levels. I don't see it. So I'm not waiting. I'm pulling the trigger.