KGCI: Real Estate on Air - How Recent News Is Impacting Interest Rates

Episode Date: February 14, 2025

And welcome to another edition of the nerdy agent podcast. I'm your host, Luke Pedersen, with my brothers and fellow nerds, Josh and AJ. It's a fantastic week here in Minnesota. The Minnesota Timberwolves are in the Western Conference Finals. Wow, I wish you were in the house. I wish you were in the house with us at AJ and Emmys on what day was it? Sunday? Sunday.

On Sunday because the vibes were not good. until the vibes were amazing. I was chill. I was too okay. I think the key was Luke finished his baseball game. He had to go shower downstairs, so he took the shower. And he heard me bouncing around

in the sport court shooting hoops. And we went down there and we hit 15 consecutive three-pointers. It was a lot of threes. And I said, that's 15. That's good. And then we walked down to the court. And then I sat downstairs

for the rest of the game. But you came upstairs and then it got worse and then you went downstairs. No, he was downstairs the whole time. It was great. And then I sat in the back. So we were all sitting there going like, I hope he doesn't cheer too loud because if we know what's happening.

I did. I can't remember what the play was where I really let out of screen. One of my favorite memories. Probably involved Nasreed. No, so at the end of the third quarter, we were down by four, I believe. And aunt hit a step back three over Aaron Gordon. And as Anthony Edwards on our TV was stepping back to the three-point line, I heard A.J. scream from the basement.

It was very loud, but it was very fun. It was magic. And we'll do 45 more minutes in the Timberwolves now. See, I was thinking we would just do a Timberl's podcast. today. That's what I was hoping for. Yeah, why the Timberwolves are affecting interest. So, yeah, we'll analyze.

Well, and by the time you see this, too, the unique thing is there, they will be two and O, they will be heading back to Dallas. By the time you see this, we will be moving forward closer to the NBA finals. Trivia question for every. Trivia question for everyone. What is experiencing more swings right now? Mortgage interest rates or Luke's emotions about the Timberwolves? Or basketball scores in general during the game.

I think, I think it's probably Luke's emotions because he's gone from, we are going to break a record and go 16 and 0 to we have no chance of surviving this Denver series to now we're never going to lose again. I never said that about that series. I think I think I saw we're toast at one point. I said I said that we were going to be better than 16 and three in the playoffs and it's still attainable. Yeah, no, but then after they lost three in a row, I'm pretty sure you said you were, you were

on the doorstep. I said we need to make an adjustment, but then they start doubling semantics. We can't be better than 16 and 3. We can only be 16 and 3 or better. is what I had said, so we can do that. Well, let's get into what actually matters, not the Timberals, but they do matter more. So today we're going to chat about just the interest rates where they've been recently, what this new jobs report has looked like, what that is meant for interest rates, where we think interest rates might go based on what the Fed has said and what the Fed might do moving

forward, how that can affect the market and how that can affect your buyers and how they should be using that to maybe change their decision making in the next three to six months. And then we're going to talk about the advisory realty group a little bit to finish up. So to start, it was it, it was a week or two ago, week and a half ago. Something like that, the new report came out, the rates. May 6th. May 6th. The rates, wow, it's been two weeks.

Yep. The rates came back. So chat about that for a while. So, well, the biggest reason we saw, we saw rates dip under seven, which was pretty fun to see because I think the last podcast we talked about rates, they were in the seven and a half range. They'd just gone up. We did see, which is, this is the one that I always preface with. the fact that the jobs market is one of the stranger signals in this whole process. But the U.S.

economy added 175,000 jobs in April, which seems like it would be a good thing, but that's the slowest job gain in six months below market expectations. Unemployment rate went up, so from 3.8 to 3.9%. And so because of that, it signaled economic softness because there are fewer jobs being added than we were expected, which sent the rates going down because the belief is that the Fed is going to start, you know, behaving more favorably in terms of cutting rates when they believe that we are in more of a recessionary state. But if we're not in that recessionary state, they're not going to make any sort of behavioral adjustments. And so people not having jobs or there being fewer people having jobs is actually a good sign for mortgage rates.

And we saw that big drop happen shortly thereafter. They've come back up a little bit since then. They're not under seven anymore. but it was a it's a weird thing to be excited about, but it was an exciting moment to see that report come out for those of us that have been waiting for positive news on rates. And I think the biggest reason why they're looking for higher unemployment or less jobs is because less people have jobs, less people spend money, correct? More money circulating causes inflation to go up.

The thing they're looking for is inflation to go down so they can hit whatever they call that soft landing to be. And well, and the easiest, the easiest way. to avoid the wage price spiral is to have less people with jobs, right? So the wage price spiral is stuff's more expensive. Employees ask employers for more money because stuff's more expensive. Employer spends more money on salaries. Employer raises price of goods. And then the same thing happens in perpetuity. So if less people have jobs, there's less opportunity for that to happen. And there would be a growing sense of competition for employees for the job.

that are available out there. And so there's less opportunity for them to say, inflation's really high, I need more money, right? So there's this macro that feeds into this micro level that causes this kind of phenomenon to happen. And to Josh's point, when the unemployment ticks up, it's a weird thing to cheer for in the real estate industry because obviously we don't want people losing their jobs

or to be unemployed, but it's been historically very, very low for, I mean, 18, 20, 24 or 36 months. You know, I think we topped out in 2008 at like 9% unemployment. Does that sound about right, guys? I'd have to, I'd have to. I can get a look at it. It was about double, I think, of what it is now.

And so then that leads to, wow, nobody has any money. Like the wages are going to be lower because there's 8% of people are looking for jobs rather than four. And that tends to lead to an outlook of, hey, inflation's coming down, feds cutting rates, mortgage rates go down. 7.3 was the highest in 15 years in 2008. So we're about double. Roughly double. For sure of what it had been.

So if we continue to see the unemployment get to 4% and maybe even roughly higher, you'll continue to see those treasury yields drop. You'll see mortgage rates go down. And then, yeah, we'll see what bloodbath ensues. What's really funny is,

we've talked about it before, is the shelter pricing is what's primarily causing the CPI to be high. And the Fed doesn't quite know if they want higher mortgage rates because that would lead to potentially a slow down in shelter pricing or if they want more unemployment to signal that the market is softening, the whole economy is softening, which then leads to lower mortgage rates and then what happens to housing prices and shelter prices. So it's a little bit of a catch-22 when they only have, you know, a cost. couple of levers to work with. That's the one piece that I'm going to be curious to see what they

decide to do because one would think that if these reports start coming out pretty favorably, so like the CPI comes out pretty good, the PPI comes out pretty good next time, whenever that is, will they then start to signal that they will start cutting that overnight rate or are they going to hold it? Because the second those come out favorably, we're going to see the secondary market react and the margins are going to get smaller again, right? So then the rate's going to go down before the Fed even cuts. I think the Fed's going to, I've said this a number of times, but I think the Fed has no incentives to get active right now. There's just no, unless things start to look like, they're headed in a bad direction and they overshot it, which they haven't been, like the CPIP,

I continue to be actually ahead of pace, or more inflation than they were hoping for. And so with that said, I just, I don't see any reason why they would want to do anything. They just should sit still. And I think Powell's smart enough to realize that has been kind of for the whole time oscillating with his communication, but always keeping a little bit of a conservative tone in terms of what their behavior is going to look like to try to keep people at bay, right? The more that he can have everybody just like sitting still and not overinvesting and not getting too crazy with their money, the better it's going to be for him in terms of

just the economy carrying on the way that it is right now. And I think right now he'd look at it and say, everything's pretty good. We're doing a good job. Inflation is still higher than I want it to be. Housing pricing is high. But I think, I mean, we've talked about this a number of times. If you look at housing pricing, you're not going to solve that with interest rates.

You just, unless you push them to 10 or 12, but then at that point, the people who are buying are still having so much. Eight and a half might do it for you. It'll solve the supply and demand problems, but then the affordability is still going to be an issue. That's true. Because either you're going to have really high rents that are going to go up because housing prices are going to go up or you're going to have really high mortgage rates that are going to to have really high payments. So the solutions on real estate need to be more supply and demand driven than they need to be, like in terms of just supply driven, I guess is the best way to put it, is creating more ways for real estate to be created and affordable and more option available

for potential buyers than just mortgage rate driven. That's the number that I'm going to be super curious to track in the next like three years is going to be at what interest rate do we start to see the level of inventory new listings that we saw in 2019, 2020. In the fives. For sure, is. But, but is it 575? Is it 525? Is it 5? I think when it goes under 5, you're going to see a lot of action. Under 5. Yeah. Under 5. Under 6. See, one could argue that an environment where rates are under 6 may actually be a better environment for buyers than the current environment. Or 6 and 1 half even. Like, you would almost maybe be better going straight from 7 to 5 and a half, which is super weird.

I mean, and I know it makes sense, but like the market's going to get crazier, but you're going to see more sellers enter the market. You're going to see more buyers into the market. You're going to have more competition and prices are going to go up. They'll build more houses. But everything will spur activity,

which activity is going to be net beneficial to affordability, even though there's going to be more buyers in the pool if rates come down. So it's kind of an interesting phenomenon, but like right now the goal is like just pause activity as much as possible. But when sellers aren't moving because of it, it's not really helping. And buyers are still, in a lot of cases, put in just really bad scenarios that they're having to choose between, but there's still people buying and selling real estate.

So, yeah, I don't know. It's interesting. But if they did take a sledgehammer to rates to just do something to try to bring them down or they created some sort of incentive program to drive rates down, I do think you'd actually probably see more affordability. But it would be kind of a weird conundrum in how that would play out. Yeah, there's just a lot of stuff at play too. And I think the Fed, like I said, they only have so many lovers.

So it's like the other question is, you know, you look at the stock market right now and valuations are trading historically quite high, at least from a like earnings per share and that kind of stuff. On that note, I pulled a Luke and I bought Bitcoin the other week. Some Bitcoin. It's working so far. That's great. It's not a currency. It's a supply and demand. It's a supply and demand play.

It's working so far. It's all I'm going to say. But point being, the valuations are fairly high and I think the Fed probably knows that too. And as soon as they cut rates, you know, I talked to Alex about this a little bit. He's like, if they cut rates meaningfully enough, think about all the money sitting in these high yield savings. People are ready to go. They're ready to go.

They're not just, the people that are holding big holdings and that kind of stuff right now are not just going to go and spend all that money. They're going to turn around and they're going to invest that back into the stock market. And then what happens to the valuations of companies in the stock market and what does that do to the greater overall economy, right? Because if, you know, en masse people are taking thousands and thousands of dollars out of money market, because now they're only getting three when they were getting five and a half before and they pump it into the stock market, does that break something else? So like I think they're looking at so many data points to make their decisions. And to Josh's point, they're like, let's not screw around too much.

Because if we screw around, we're going to positively infect these five things. We're going to negatively impact these five things. And we don't know what's going to happen. And it's an election year. And truthfully in election years, most people do just kind of hang around and wait to see what's going to happen. Right? Because the investors say, well, if this guy gets picked, then this is what's going to happen. If this guy gets picked, this is what this is going to happen.

I think the funny reality on that one is like regardless of which party wins the election, the following year, the stock market is usually pretty good. Exactly. In the first year. It doesn't matter who's the president. Because there's money on the sidelines. Because everyone's waiting the whole year beforehand. Yep. Yep.

So it'll be super interesting. So it's all I want to talk about for interest rates today. But I did want to, unless you had anything else. No, I mean, I think it's, it's, we're kind of being reiterative in terms of what we're saying versus what we've said in the past. But nothing really has, I mean, things have changed, right? Rates have gone from here to there and they've moved around and they're oscillating. But they're oscillating more than a band now. And it seems like, and I could be wrong, but my crystal ball has been for the last six months and continues to be, I don't expect any major movement.

So if anyone is telling you, like, the Fed's going to drop rates seven times or putting a lot of positive, news out about interest rates into the marketplace or you're reading a mortgage broker's opinion on where rates are going and they're going to go into the sixes or fives, there's just not any reason to believe right now with what we're seeing in the reporting that's coming out and we're seeing in the behavior of the Fed that that's going to happen. So I'm just communicating my buyers like, you know, if right now you're considering buying a house but you're waiting for interest rates to drop, there's not a lot of signs that that's going to happen. And if right now you're a seller and you're waiting to sell your house until interest rates drop in the markets gets

more competitive. There's not a lot of signs that that's going to happen. So you're comfortable to keep waiting as long as you're okay with your situation. But if people are waiting for interest rate drops, you might be waiting for a long time. Also, it is a good learning point, I would say for real estate agents, if you remember at the beginning of the year in December and January, when the real estate social media posts went around that everybody was saying the Fed was going to cut the overnight rate six different times this year. And it was, was like in mass. I must have saw 50 different people post it because they probably didn't look at what the market was actually looking like, what the Fed was actually maybe going to do. One person said

this and so everybody hopped on board because it was positive news that could drive sales for them. Just pay attention and don't necessarily hop on the bandwagon with that stuff because at the end, like if a buyer did see that and then they look and go, has the Fed dropped one time this whole year? None. No, none. They've just been the same, right? Yeah. And zero times. It just isn't. going to be a good look. It's like make sure you're being smart about that as well. Yeah, to soapbox this, right? Because I, this drives me nuts. Like there were, and there are times when real estate agents that are listening to this, right, you're struggling, right? Because the market's down. You're feeling the pressure of your paycheck. You're going, I'm not going to make enough money

this year. Now there's a lawsuit for commissions. You're going, ah, this is really hard. That's okay to feel that way. One thing that people do when that happens, because I have a lot of friends on social media that are real estate agents, is they just throw out. the same post that everyone else is posting. And it drives me nuts because most of the time it's factually inaccurate and it's not pressure tested. And it actually makes you look like the used car, salesperson, real estate agent that your friends then won't trust. Right. They're going to look at you and say, this person is just trying to make me do something that I don't want to do. I am no longer going to trust them moving forward. Be thoughtful about what you're putting online.

Do not try to convince people to do something that they may not want to do. Instead, focus on informing them, right? If you're listening to this, that should be a good step in the right direction. You are informed about what we think is going to happen based on actual data that we're reading into. But if you just see someone post something and you just are like, I'm going to repost this because it helps me look good as a real estate agent, do some research on the front end before doing it and make sure that it's factually accurate and that it might actually happen because when it doesn't, people are going to go back to that and be like, yeah, this person just was spouting nonsense. They're not actually a good real estate agent. They don't know what they're talking about.

And if it, for what it's worth, maybe somebody will go to a car dealership and buy a car that they shouldn't buy. Most people aren't going to just buy a house. So you're just saying that stuff to try and get people to transact. They're just not going to if they don't want to. And if they buy a car, they didn't want to buy it. They're not going to be happy with you afterwards anyway. Yeah, but they're not going to back to that dealership. Exactly.

This is a great transition though, Josh, talking about agents out there that are struggling, maybe not having as many sales because we did want to finish up by talking about our team, the advisory realtor group. We don't like to plug this very often. But we are in kind of an unique position right now. I think we've talked about Zillow Leads before, how we have Zillolids on this team. We had a recent increase just based on our success on their program. I don't know what the exact number is right now that they're feeding.

410 connections a month. 410 connections a month. So these are people that are clicking the button because they see a house they like. They want a schedule showing on that specific house. They're connecting them to our team. Our agents are showing them those houses. When those leads come in, our conversion rate is usually in the all-time conversion rates usually around 8%. We're selling roughly 20 to 25 homes on the platform a month.

We currently have in our lead system, a lot of leads that we honestly just don't have enough agents right now to pick them up. But we're seeing a couple a day for sure that go unclaimed or what have you on there. And so we are looking to add agents that are in different positions in their career. I would say good agents. I would say good agents, but we're just looking for someone who's going to work hard and be willing to listen and learn are like the two things that we need from somebody. And if you can do that on this team, you could sell 10 houses in the next six months. Yeah, for sure.

Our expectation is in someone's first full year that if they really hustle hard, listen, take direction that they're going to make six figures. That's really what we strive for. And, you know, one big thing, and not that this leads to six figure income, but one big thing that we track is how many agents on our team are selling 10 or more. homes a year. So roughly one sale a month and that has increased by 20, 30% every single year. I think two years ago it was 12. I think this year it's going to be about 20. So we're trying to get that per agent productivity up by supporting the agents, showing them how to add value for their

clients, but also just giving them fresh, ready, willing opportunities through the partnership that we have with Zillow. So if you are interested in even just having a conversation, coming to a team meeting. We meet on Tuesdays and Wednesdays at 10 a.m. at our office here in Hopkins. Or if you just want to have a private conversation, you can text message me 612-229-7-9-27. Shoot me a text. I'd love to chat with you. We'd love to, you know, connect with more agents in the marketplace, whether it's just networking or looking for new opportunities. What's our Instagram handle? If you wanted to just follow us on Instagram, so you could learn more about our team before you text AJ, the advisory MN, at the advisory MN on Instagram. That's a great place to learn more about us

and get an idea on kind of what our culture is like as well. Yeah, I think two things. One, I just got on my soapbox about how I hate when we try to sell things, right? Like as real estate agents, that difference here is I do feel like I've looked at what other teams are doing. I've seen enough about what other people experience in those environments with this whole structure is built around the concept of, yes, the Zill leads are a great reality, right? If you're struggling to have clients and you need a client, you have access to clients immediately. So that's an automatic win for anyone who comes aboard. But more than that, our goal is always on trying to help agents build sustainable businesses. We actually don't want our agents to be stuck

taking Zillow leads forever. The goal is to come in, learn how to do this job really effectively, coach, train, develop. We have a full onboarding process. Give you some reps with leads that are not your best friends, that you're not, if you're not good at this, job yet. You're not going to just disappoint your best friends. And then build a network and then learn the follow-ups after a transaction is closed, which is one thing that I just feel like agents are terrible at, to ensure that you continue to maintain relationships. You show a ton of value on the front end. You helped them get what they wanted. You stayed in touch after the fact so that you are the first call for their friends, their family, them when they choose to sell that house and buy another house.

We want agents to build sustainable long-term businesses. And that's been the goal is the team was started not to make money. The team was started to help agents have successful careers in real estate. And so I think that's something that really sets us apart. But yeah, it's, it's, I think important to do. Second thing is I think we have listeners outside of Minnesota. So throw this out there. Once again, our goal is to help. Move to Minnesota. No, our goal is, get you. Can't say the word to Minnesota. Yeah, Anthony Edwards. I mean, I think we've said this, but like our goal has always been to be helpful. And so we have a number of different teams that we've connected with across the country that, you know, aren't going to be on our team. But if you want to

know more about how we do things and how we think about things and what we can provide and ways in which you can run your team more effectively, like reach out. We're always here to help people. That's always been our goal and that's turned into positive results. My last plug here is, statistically speaking. We are the second highest producing team at EXP in Minnesota on pace for right around 500 sales in 2024. And we are top 50 nationally at the brokerage, a brokerage of 90,000 agents. So not to toot our own horn, but we aren't quote unquote super small anymore. We are growing very fast, but our team still operates as a really tight-knit group, full of collaboration. Everyone's here to help each other. And the proofs in the pudding

with a lot of the agents that have been, you know, in the field. for a long time or those that are brand new. A lot of folks have found a lot of success here and I think are very happy producing and creating opportunity for their clients and for their families. That's all we have this week on the nerdy agent podcast.

And as always, remember, be better. Go wolves.