New Fed Chair, NO Rate Cuts: Should You Still Buy a House?

[00:00:00]For the last 3 years, home buyers have been waiting for one thing, lower mortgage rates. The belief has been that once the Fed starts cutting rates, mortgage rates will finally come down and affordability will improve. But what if that never happens the way people expect? This week, the conversation actually shifted. The Fed signaled fewer rate cuts than many investors were hoping for, and markets quickly adjusted their expectations. Once again, buyers are left wondering where mortgage rates go from here. So today, we're going to break down what's actually driving mortgage rates, why the Fed isn't the only factor that matters, and whether waiting for lower mortgage rates is still the right strategy, because understanding what moves the market could save you from sitting on the sidelines while the opportunity passes you by. So predictably, Jeb, this was um at least headline-wise, news reaction-wise, this was a very very big Fed meeting. The Fed meets eight times a year, generally a non-event. Generally, the markets know what's going on. And we had two important things. At four of those meetings every year, they do their dot plots, their summary of economic projections. This is uh looking like it's going to be a relic of Fed past where the Fed board and the president, the the Fed chair get together and put out their expectation of what's going to happen over the next three years, which is a very very hard thing to predict.

[00:01:16]And the second piece that made this a big one is the first meeting helmed by a new Fed chair uh Kevin Worsh. So, we've had Powell for the last eight years and now he has been replaced. We know all of the back and forth with Trump and and Powell and now switching over to Worsh, a lot of pressure on Worsh to lower interest rates. So, all eyes were on this meeting for both of those reasons.

[00:01:38]Um, and it didn't disappoint on any of those fronts. Now, the big thing that we're going to point out and and we'll talk about the actual reaction. The headlines were very big. The immediate market reaction was big. I don't know that anything really changed. Let's talk about the differences of this Fed meeting. And most importantly, if you're watching this show, you want to buy a home. Who cares? Who cares what the Fed is doing. The only reason we care is because it impacts interest rates. It impacts supply and demand. And it's going to impact you as a buyer out in that market. So, we're going to talk about the things today that make a difference on that front. And on those lines, those dot plots, that summary of economic projections, they went from the last time they released them in March, the consensus was that we were going to get two rate cuts this year. Now, 3 months later here in June, we're looking at two hikes for the remainder of the year. The median, we've talked on the show a million times, a median number is a dangerous number. The median expectation on those projections at the last meeting, Jeb, was 3.4%. The median expectation now is 3.8% at the end of the year. That's a pretty big move. Um, we'll talk a little bit about how the market reacted to this because that's really what matters. We're going to talk about in the next segment here. The Fed does not directly control interest rates, but they impact them and it's going to be important um how how that happens. Probably the the biggest take and I I'd love to hear your take on this. Yeah. For me watching it there there's always a two-step on Fed Day.

[00:03:03]they release their um their statement of of what they think is going to happen and it's generally three four paragraphs fairly brief but um we we'll talk about how brief it got this time then um if they're doing the dot plots the dot plots are released and then about an hour later the Fed chair takes a Q&A so the Q&A this time was very very different something that Worsh has been really clear on is he does not believe that the Fed should be in the business of telling the markets what they think the data is telling them and I actually have a a quote here from him. He didn't answer. So what what the markets were kind of hoping for rates were were marginally worse after the announcement and the dot plots. And what they were hoping for is that he would be more dovish that he would push back against this really aggressive stance that that they took that the market took from the statement. Um but one of the things he said here is I think financial markets perform best when they react to incoming data. I think the financial markets work less efficiently when they ask a question, how will the Federal Reserve react to that incoming information? So for the most Yeah. I mean, I think you kind of summarized it without even saying it.

[00:04:42]Like, you know, we we typically get uh the previous Fed's statement and then what you get is the Fed's new statement and then you have things redlined in in the document. Basically, what's changed in that document from the previous statement? Because if you if you laid these statements from the Fed, you know, eight times a year on top of one another, there would only be a few changes in a couple of words in in those documents. It's it's pretty much a boilerplated document, right? Right on top of one another. This one uh had a lot of red ink on it. There was a lot of red lines where essentially you took three or four paragraphs that were yay long and once you marked all that out, it was probably three sentences long. I mean, it was super super short. Um, in fact, we'll throw it here on the screen so you can see what that looks like.

[00:05:24]But, um, and then the projection, right?

[00:05:27]So, there was no projection, a lack of projection, a lack of transparency, a lack of, um, direction if you will, other than the dot plot, right? And the dot plot basically signaled, hey, we've got, you know, there's still somebody hanging out there down at the bottom, Josh. I don't know who that was, but they they were still hanging on to super low interest rates.

[00:05:45]>> One out of 18.

[00:05:46]>> Yeah. was was low, but the majority of people had moved up in in where they thought uh rates were going to go. And you know, if you've listened to me on, you know, this channel or my own channel, what I've what I've said many many times is the market loves transparency. The market loves having an idea of expectations of what the market's going to do, what the Fed's your thoughts are on it, so on and so forth. And now what we're getting is a little bit of push back saying, "Hey, listen. We don't ne necessarily think that's the best approach. We want the market to react as the data comes in versus us giving guidance and and telling you what we think or or where the market's headed." So, I don't truly know what that means, Josh, other than he did remain very very um what's the right word? Uh strong to to the Fed's uh goal of two 2% inflation. um which we knew that kind of coming into it. He's a little bit opposite of what um you know I think Trump thought he might get in in a Fed president, but maybe maybe that's part of this whole thing. Like it's it's weird to say right now because we don't truly know the direction, but at the moment it looks like he's got a pretty hard stance. I think it's a really good transition. So you just brought up a very good point. So that statement, the final two lines from the statement that is now only three four paragraphs, inflation remains ele elevated relative to the committee's 2% goal in part reflecting supply shocks that have driven price increases in certain sectors including energy. Final line the committee will deliver price stability.

[00:07:20]So they have a dual mandate price stability meaning keep inflation at 2% or below and full employment. No reference to full employment. So there they did give us some guidance there.

[00:07:30]Right now we are focused 100% on inflation. Inflation is elevated. We can look at the numbers but CPI came in at 4.2%. That's way above where we want to be. But what he's also saying is right now we believe we have a situation in the Middle East that is not permanent that is pushing energy prices higher. So we're going to do what we can do but we can't do a lot. We can't we can't give peace in the Middle East. We can't open the straight of Hormuz. We're going to do everything that we can on this end.

[00:07:59]So the transition or the important part here to think in terms of is to remember the Fed does not set your mortgage rate.

[00:08:08]So on Friday or on Wednesday, the market looked at this and said, "Oo, we need to readjust." Um because the market is is forward looking and they're always trying to anticipate where the Fed's going. So when the Fed's going to cut, the market doesn't wait. So your mortgage rate sheet is better before a Fed cut. when they think the market's going to hike or the Fed is going to hike, your mortgage rate sheet is going to be higher ahead of that. And we've seen that rates are higher than where they were three or four weeks ago because the rumblings out of the Fed despite the meeting is that they are going to get more hawkish and they're going to lean that direction. So when we get this, it's a little bit of a shock when you see exactly how clearly what they are currently thinking in terms of those dot plots and and and forward guidance. And so we saw a knee-jerk reaction. We were off 50 basis points on Wednesday. So in real terms, it's like an eighth of a percent worse in your interest rate. Well, by the end of the day, we'd got some of that back and by the end of the next day, we'd gotten almost all of it back. So a full round trip, nothing has changed. If you look at the headlines, Wednesday, Thursday, Friday, if you're someone who just picks up the news on the weekend, you'll see a recap. Oh my god, rates popped. Um we were at 6.625 on on the 30-year fix. All of that was true. But remember that the Fed does not dictate your interest rates. It's um a piece of input that tells us where we're going in the future. So actually um have a quote here from uh an analyst from Bank of America who said an increase in the Fed funds rate isn't necessarily a bad thing for mortgage rates. It signals a flip that will help move some of the economic data more favorably, lowering inflation, and the markets could actually react well to that. Mortgage rates have a lot of room to level off. So, not drop to level off.

[00:09:49]Looking at where they've been trading at, where the 10-year yield is, a rate hike is definitely not the end of the world for mortgage rates. That to me is probably the best summary or the best takeaway here. You were saying that everyone was of the belief that Wor was put in here to go in and lower interest rates. And some people like when he first got nominated, he's going to come into his first meeting, he's going to cram through a rate cut. And he did the exact opposite. came out, hey, we're we're leaning more towards hikes and we're going to do what it takes to deliver price stability. But the paradox there is if Trump wants lower mortgage rates, lower interest rates for you, lower treasury yields, lower borrowing rates for the US government, a hike may be the best path to that, the fastest path to that. Yeah. I mean, I think, you know, he had to come in and kind of set precedent, right, as a as a Fed chair, not a puppet, so to speak. Um, and I think he did very well with that. Um, you know, the one thing I I you know, that we've talked about before and you kind of mentioned it a moment ago, Josh, is that, you know, going into a Fed meeting, a lot of times when the cut happens, it's already built into the market. So, we've seen that pricing weeks into that because we knew it was coming. If the Fed truly does get do away with with this forward guidance, the dot plot or any sort of um direction there, you're going to s see a lot more reaction on the day of like if a Fed cut happens, uh they raise interest rates. I mean, the market's going to have some sort of thought into it, but they're not truly going to know maybe what's going to happen just because of that lack of transparency out there. So, it'll be interesting to see what happens. But I think, you know, if you're one of those people waiting on Fed cut rate or Fed cut rates, Fed rate cuts, um, probably going to be waiting. um you know the the based on what we're seeing right now inflation is elevated even though we have an interim deal in in uh the Middle East which you know I wake up this morning a deal was signed what yesterday or the day before Josh and and as of this morning I read on you know I get these updates via Bloomberg in my email and we're already having problems and it's like what like we just signed a deal yesterday so my I'm under the belief that this is probably going to be an issue it's going to continue I don't know, escalate's the right word, but it's not going away. Um, an interim deal is not a permanent deal. It's temporary.

[00:12:06]All right? Because we still have some things that we have to work out in this in this whole transition and and what's happening. So, to me, looks like interest uh inflation's probably elevated for the for the interim um at least of 2026. So, you're you're probably pushing into 2027 for any sort of relief on on that front, at least from a cut. And and if it if you get a a raise, does that help interest rates? I mean, we said it could, but I I don't truly know what that means. Well, let let me co-sign your thought. Is that the what they really agreed to was a 60-day period of negotiating on the real issue.

[00:12:43]All of the things that have been agreed to and settled on um with Iran are the things that we would have never dropped bombs over. There's one and only one issue over there that actually matters.

[00:12:54]It's their their nuclear situation and they're enriching uranium and that is very unlikely to be solved in the next 60 days. And again, in the context of home ownership, who cares about politics. The only reason we care is as long as that remains unresolved, there is not a path to lower interest rates.

[00:13:08]Their lever to fight back against the United States. They cannot fight us with bombs. They can fight us with the straight of hormones. And they've done a spectacular job of it. And that hits us economically. It hits us inflation wise.

[00:13:19]And it keeps rates elevated. only reason why we talk about it here on the show.

[00:13:22]Otherwise, we don't care about politics.

[00:13:24]So, you're 100% correct on that. The Fed can't control it. So, new Fed chair, no matter what he wants to do, they're going to be dealing with this, I believe, for longer than we expect. So, I would expect status quo. Um because the longer the the straight stays closed and we don't see this economic armageddon that different solutions are made for getting oil out of the Middle East and keeping energy prices down. Um that pressure can either get a quick release with a solution which looks like it's not going to happen or a slow release over time and things slowly slightly get better. Over the last couple days we'd seen oil prices drop almost you know down near the levels before the straight was closed which is insanity, right? you you have to believe that it's going to be fully open in the very near-term future and oil demand is low. So, I don't see that. So, long way of saying closing the loop on that.

[00:14:15]Probably more of the same for mortgage rates and housing affordability because I just don't see a path where rates drop precipitously. And I also don't see any escalation or any craziness over there that would push things higher. Um, we can always be surprised, always have black swans, and that's why we do this show. That's why we update you guys. But as of right now, I I think more of the same. We've kind of seen a ceiling somewhere around 675 and a floor for now around 6.25 for interest rates. So that affordability is better than it was a year ago. Nowhere near what it was, you know, during and coming out of CO. Yeah.

[00:14:52]Yeah. I mean, we kind of talked about Worsh earlier, Josh, but like who is Worsh like as as a Fed chair as as where he thinks, you know, the market's going to go, where rates are going to go.

[00:15:04]>> So, what what we talk about? You had mentioned that people thought he would be a puppet, that he was put in there to just lower interest rates, and he is known as being dovish on rates. Like Trump, he believes we should have lower interest rates. But he's also an economist, a very accomplished one, and a realist in saying you can't just drop interest rates. If he had gone in there, let's just say he could wave a magic wand and he goes and does a 25 basis point cut or a 50 basis point cut on Wednesday, we would have seen rates actually paradoxically get much worse.

[00:15:32]Just like be the BFA analyst is saying that hikes could bring rates down. Cuts would have made it much worse. So there's a second piece to this that could absolutely impact interest rates.

[00:15:43]So he's known to be dovish on interest rates but a hawk on the Fed balance sheet. The Fed still owns billions of dollars of mortgages. And if he were to get aggressive about reducing their holdings, that means selling mortgage bonds, more supply of mortgage bonds, aka flat amount of of demand for that supply, rates would go up. So, I don't think because he's dovish on rates, even though he wants to normalize that balance sheet, I don't think he can do that. So, right now, um, there's there's always the the ideology. Jeb has what he wants to do. Josh has what he wants to do. But we're hemmed in on on all corners. Our wives, our kids, our dogs, they don't let us do what we want to do.

[00:16:25]So there's the reality of of knowing what between someone's ears is they would like to do and then the world around them what can actually happen. So his options are fairly limited right now with a relatively strong economy, a relatively strong jobs market, and elevated inflation. He's got limited options. What can he do and what is he doing? We talked about it. He doesn't believe the mark that the Fed should be telegraphing to the markets what they're going to think. So what did he say of those dot plots? He did not submit one.

[00:16:55]He said fine. Um I I we're going to continue doing this for now. You can absolutely submit yours if you are a Fed member. But during one of the things he did say, one of the questions he did directly answer during the press conference says, uh I noted that all submissions were coming in with pencils.

[00:17:12]You know those kind with the big erasers. That's to say that I think my colleagues around the table when they submitted their dots understand the world is changing quite quickly and they didn't feel bound by them six weeks from now or six days from now. So people look at those dot plots, those summary of economic projections, go this is what is going to happen. He's telling you we are economists. We have great data. We get a consensus here of of a group of really smart people but it's written in pencil because we don't know. Things happen.

[00:17:41]Things change. I think that's it's [snorts] a solid take. The the the market is looking saying hey he doesn't want to tell us what they're thinking and what he's saying is no one can know and it changes. The other thing Jeb I don't know if you saw this piece but he did announce they are going to create five new task forces to steady communications the balance sheet which we just talked about data which we talked about productivity and jobs which is the other part of of their mandate and inflation frameworks. So what he's saying is we are using antiquated measures of the things that we're making decisions on. I want to get these really smart economists here in this room, break them up into task force and we're going to go let's get the best data that we have. It's kind of just modernizing what the Fed does and it is long overdue. We're going back to what the mid80s Greenspan was it was 87 88 that Greenspan came in. That is basically the regime that has been consistent for the last 30 years. They haven't changed how they operate, their mindsets. They they they think and look the same. The world is very different than 1988, 1998, 2008. And he's saying we need to modernize and and get this to a different place. So, I don't know. I look at it and I'm hopeful. I think it is all positive, but time will tell, right? Your first day on the job, you get to smile up sit up and smile in in a pretty new suit and you look great. And it's it's hard to dislike the person.

[00:19:07]Let's come back in three, four, five, six, eight months. I mean, remember when Pal's first press conference, Trump said he's probably probably the greatest uh Fed chair ever, and you saw how that worked out. Sure. So, so let's answer the question that everybody's asking.

[00:19:21]What are interest rates going to look like in the second half of 2026? So Josh, you and I started the year with a prediction, as we do every single year, a forecast rather. Um, and we said somewhere between 5.75 and six and a half. 6.75. Um, I don't remember if we said six and a half or 6.75. Either way, about a full point range. Um, we saw towards the low end of that. We've been towards the high end of that. Um, with that said, kind of looks like we're in this uh middle range. Um, it's going to be one of those where, like you you've used the word earlier today, status quo.

[00:19:55]um probably going to hang out in that 6 and 1/4 to 6.75 range for the better part of the year unless you see something happen on either front. Right?

[00:20:06]If the war escalates further, gets worse than it is, chances are you're going to be towards the higher end of that range.

[00:20:12]Um and if it ended today and they determined inflation wasn't a problem, you'll see the lower end of that, which I don't think that's going to happen.

[00:20:19]So, um your thoughts on it?

[00:20:22]>> I I think the same. you know, if we gave that range and I would have said 575 to six and a half if we went back and look at the recording and probably lean to the low end of that and we got there way faster than we thought. I remember you and I saying late January, early February like this is moving really fast. Did not expect rates to get here.

[00:20:38]So, it got lower faster than we thought.

[00:20:40]Um, my expectation would be 6 and a quarter to 675 the rest of the year. I truly don't think they can go much higher. You talk about escalation in the Middle East. I don't think any either side has that option there. there's too much pain to escalate for either side.

[00:20:55]Unfortunately, that means there's sort of this stalemate and status quo that we've been talking about, which means not much improvement for interest rates.

[00:21:03]So, black swans happen. Things could happen. There could be a bolt of lightning. Moses could come down from the hill with the tablets and give a solution that everyone's happy with. Um, I don't expect that to happen. So, I'd say six and a quarter is your best. 6 and 75 is your is your worst. And remember, we're talking about conventional rates, government loans, FHA, VA, um much closer to six. Um really wellqualified borrowers could even be potentially a little under that if they're they're willing to pay a little bit for it. So, um if if you would ask us at the beginning of the year, would you be okay with these rates? Would you take these interest rates? I would say we would take them, but we wouldn't love them. And I think that's about where we're at. And I think you if you are in the market, would that's that's sort of the way to look at it. Could be worse, could be a heck of a lot better, but this is what I got. So now I got to go back and look at my life and my decisions and make this. It's the market's not going to make the decision for me. All right, so we're the educated home buyer podcast. A lot of people are asking the question, Josh, should I still buy? Should I buy a house with elevated rates? Should I buy a house where affordability is still strained?

[00:22:04]What does that look like?

[00:22:05]>> Let's go back to to my last answer. You absolutely should. If you have already answered that it is the right decision for you and your family, you've saved a down payment, you're going to be in a period, a home for an extended period of time, meaning we used to say five years, you say 7 to 10. That's probably the right answer in the current market. Um, you have good credit, you have job stability, your relationship is stable, you have benefits, you want your kids to be in the same school district, the same soccer league for the next 10, 15, 20 years. There are strong benefits to home ownership. the people that shouldn't is um they're trying to talk themselves into it. Like it's funny, we've talked on the show many times like how co pulled demand forward. What does that mean? It means that there were people who it wasn't quite the right time in their life, but there was a big incentive to act then. They saw prices were reasonable but but escalating and rates were really low. It was never going to be cheaper to own a home. So some of the reason why we have low demand right now is those people bought early. [snorts] Now we have the flip side. There's people who could be thinking, "Hey, I would like to buy a home. I I want to be a homeowner." And there's a headwind there. And is it reasonable for a marginal borrower or someone who checks three out of four boxes, but not all four of them to say, "I'm going to wait till this gets a little bit clearer." The thing that I always like to say is we want to to make sure that we're not pushing off a decision that you're likely to make regardless. Um, we hate the saying marry the house, date the rate, but there is a reality there that you do have the option to lower the payment later if rates improve. We do believe, we've seen in the data, most parts of the country, though not all, are are seeing appreciation. It's not massive appreciation, 1 to 2%, meaning the home is likely to be more expensive. And I guess that when we're answering this question, should you buy now? If you're in an area where you're seeing 1 2 3 4% decreases in home prices, you're not exactly sure where you're at. Could it be a justifiable decision to push push this off? I I would say absolutely. But in terms of what's happening with the Fed, what's happening with interest rates, any externalities here, none of this should impact your thought process in getting to that decision for yourself.

[00:24:16]>> Yeah. I mean, and and honestly, if if this stirred up more questions than answers, trust me, like completely normal. And that's exactly what the educated home buyers roadmap is for. Um, it's a 15minute call. It gives you clarity, confidence in in in the home buying decision. And at the end of the day, there's no pressure, no pitch. Um, it's just a call with Josh to go over what it looks like. Um, you know, answer your questions. You'll leave with a lot of answers, probably some more questions, too. Uh, but at the end of the day, the link is in in the description of the video. Reach out.

[00:24:49]We'd love the opportunity to to guide you through that process. Um, because truly it's about clarity. It's about, you know, um, transparency even in your own self and and getting some of those questions answered will even help you make the decision or, you know, help you determine when that that right decision might be. Um, so make sure you use that link in the description. If you found any value today, make sure you hit that thumbs up, consider subscribing to the channel. Anything you want to leave with, Josh? No, just um don't get caught up in the headlines. As I said, I don't think anything here should change your thought process one way or the other. Um if we can get away from the headlines, >> yeah, get away from the headlines.

[00:25:25]They're they're there to to scare and incite, not inform and and educate. Um so do your due diligence. Um ask the questions. If we can help with that roadmap, um I say a small percentage of the people walk away from that call, we go now is absolutely not the right time for you. But that's clarity, right?

[00:25:41]there's value in in in clarity. Some folks are closer than they think and some folks it's really hey we know we want to do this. We don't even know what the next step looks like. So the roadmap is really giving you a direct path um if and when it's appropriate. We complete that preapproval, guide you through and show you exactly which programs you are eligible for, which one best fits your needs, and we'll get you to your long-term goals if home ownership is the right decision today.

[00:26:05]>> All right, guys. Until the next one, buy right, borrow smart, and build wealth.

[00:26:09]Adios.

[00:26:09]>> Adios. I jumped you.

[00:26:11]>> Oh, bro. You tried to use my amigos. I was going to let you have There we go.

[00:26:17]Adios, people.