Real Estate the Ramsey Way - What The Fed Rate Cut Means For Mortgage Rates

Episode Date: September 23, 2024

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Dave Ramsey here and welcome to another episode of Real Estate, the Ramsey Way, where you'll learn how to make smart home decisions, avoid costly mistakes, and navigate home ownership with confidence. Changing gears, George. I know some of you listen to this days, weeks later, whatever, but we just got word a few moments ago. Surprise, surprise, 45 days from the election, the Fed dropped the interest rate. By half a point, 50 basis points to a range of 4.75% to 5%. So that wasn't possible four months ago or eight months ago, but right before the election, it's possible. It's amazing the timing of that. That's just suss. Yeah.

Good Gen Z word. I'm using a good millennial word here. I'm impressed. I learned that from George. He taught it to me. So, yeah. I mean, come on, people. Can you not look at this and go, are you, is America that?

Are you folks in America that stupid that you don't look at this and go, well, that's suspicious timing, boys and girls? With a spitting distance of the election, and all of a sudden they go, all right, pull the lever. As if it's going to change anything between now and the election, it's not, by the way. But it sure is good PR because one of the things that the current administration is getting hammered on is the state of the economy. It's really hard to keep a party in office, Republican or Democrat, when the economics are bad during the presidential election year. And so right up on it, there it is, just drop. Best part is whoever takes office will then take credit for all of this. And here's what's interesting.

Mortgage interest rates are the lowest they have been since February of 23, about 20 months ago. In the last almost two years, we have the last almost two years. lowest mortgage interest rates. Very quietly, they're down, and the market has not taken off and boomed. The real estate market is not boomed. And there's a lot of reasons why Jade and I talked about this on yesterday's show, George, and you brought it up at the break that some of it might be that people have a 2% mortgage and they don't want to move. To a 6% mortgage. So they're holding their home off the market, and that's slowing down the speed, the veracity of the real estate market. I've got another theory. I brought it up yesterday, and I have no idea if there's any credence to this at all. It's just an idea.

But some people might be waiting on the Harris administration or the Trump administration to fix their life, and they're going to wait until after the election to decide whether they're going to buy a house or not. So they're just kind of sitting on the bench waiting on the election to roll out, because they made the mistake of believing that who's in the White House actually matters more than who's in their house. So it does matter. And some of these. ideas that are being debated matter. None of these personality characteristics that are being debated matter. None of them. But the ideas should be debated and you should be upset, not upset. You should be, none of you should be as upset as you are. My God, people, calm down. But anyway,

but neither one of these people are going to change your life. But some of you are sitting on the sidelines waiting because you still think that one of them is going to buy you a house. and they're not, neither one of them going to buy house. They don't, neither one of them have a buy house program as one of their policies. We're going to buy a Dave a house. I've been doing this a long, long time. I'm old. None of them have ever sent me any money.

They have all asked me for money, but none of them have ever sent me any money. Many of them have raised my taxes and raised my taxes under the idea that I'm not paying my fair share, which when I pay a whole lot and you pay nothing, I'm not sure how that's fair. but okay anyway I'm convinced the fare is where cotton candy and the tilta whirl are so anyway all that to say I think that's a hit in this market what do you think well I think the supply and demand issue still is there there's not enough supply because no one's letting go of their two and a half three percent mortgages and therefore until we see some of that move I don't think the housing market as a whole is going to shift but I do think for those that have been sitting on the sidelines waiting for a

rate to go down because it could save you a few hundred bucks with the rate cut like this, that could make it affordable for a lot of people who are ready to buy. They're out of debt. They have the emergency fund. They've got a healthy down payment. It won't buy the election, though, because the Fed rate is not a mortgage rate. The Fed rate is what banks borrow from other banks at. It affects, by extension and implication mortgage rates, but mortgage rates are formed by the bond market, not by the Fed. And so if the Fed lowering rates tends towards mortgage rates going down, which it usually does, it has to filter through the bond market, and then that will take It'll be a lag. That'll take another 30, 45 days. So that'll be post-election for you see any benefit from that.

But it's all about perception is what this is. This is a PR move. Pretty much like during the congressional elections midterm stuff, Biden came out and said he's going to forgive all the student loans. Oh, that's right. That's good timing as well. Yeah. And everybody knew he couldn't do it. And the Supreme Court ruled against him. He couldn't do it. Everybody, you can't do that with an executive order. But he goes, mean old Republicans. But it was a political announcement. That's what we call strategically, Dave. strategy. That's what the other party called it. That's a funny story. Anyway, George W. actually thought he invented that and Saturday Night Live invented that. He told me that in an interview.

I missed those simpler times. Next, we have Chris in Charlottes. Hey, Chris. Welcome to the show. Hey, how you doing? Thanks for having you. Absolutely. How can we help? All right. So, my question, so a little bit about myself. I'm 27, married with two kids. My wife, I wrote a check to pay off for $58,000 graduate student loans and we're officially debt-free. Nice. Amazing, Chris. Well done. Thank you.

Thank you. I have a unique situation where I'm a pro athlete and our bills are covered by each team I play off. After saving up for the next two years since we debt free, should I focus be on buying a house with cash and buying a car with cash? That's a great question. So are you, how are you guys doing currently with your cars? Because you mentioned paying a car with cash. Do you got, but you're debt-free. You don't have any loans on your current cars,

but you're just looking to upgrade. Is that what you're thinking? No, no. So we don't have cars. So when we go overseas, they provide us with a car. So when we come home, we usually just rent a car for the two months that we're here. But we don't want to do that no more. We want to actually go ahead and start owning cars.

Oh, I hear. you. Okay. So you guys don't currently own a home in the States because you're traveling, I guess, to Europe or where are you going for to play? Yes. Yes. So Turkey. Okay. And then where, where are you going? Turkey. Okay. Nice. And then when you come home, you're now saying, gosh, I mean, we have no debt. We have probably, you know, you're making, I'm sure, great money. So you're thinking we want to have a house in the States that we can really start, you know, having some money down. Okay. Land on our foundation. Yeah. So the first thing, yeah, with your income, can I ask what your income is? Or you don't have to say if you don't want to. Yes.

Yes, yes. So next year, so this year coming up, I actually leave tomorrow. I'll be making $400,000 for the next 10 months. And then the next year after that, it will increase to $450,000. Okay. And then you have two months where you're not making anything, or do you have other deals that kind of fill in those gaps for the other two months of the year? Two months not really making anything. I run a camp, but it's nothing substantial.

Okay. So the first thing that I would want to make sure is, I mean, you guys are debt-free. I'd want to make sure you guys have stacked up three to six months of expenses as quickly as possible. Do you have that in liquid? Yes, I do. Okay. And then the next thing is, are you regularly investing at 15% of what you earn? No. Okay. That's the first before. that's the first rhythm I'd want to start is like, okay, we're investing because I don't have to tell you, like in sports, you know, you're on top and then something happens and you're injured and you're like, oh, crap, right? So I want to make sure that that rhythm starts as quickly as possible. And then after

that, you know, the way we teach home buying is you're saving up, in your case I'd save up, you know, no less than 20 percent and then of the down payment, right? And then after that, you don't want the payment to be any more than 25% of your take-home pay. Now, if you're like, hey, I just want to pay cash for a house. Like, that's also an option. If you're like, I just want to save up the income and pay cash, you have that option as well. Okay. Yeah, and I think, too, Chris, you know, there's a reality to your situation that, you know,

you guys will just be in the States for two months at a time. Are you looking to retire and come back full-time soon? Or, you know, are you going to play this out as long as possible? Yeah, so my time frame, I'm 27 now, so I think I would play for another good six to seven years. Okay. My income might not be as high as it is right now, but I was thinking projected around the $200,000 to $300,000 range, you know. Okay, going forward. For sure.

So, yeah, so I think, yes. Okay, so since, you know, you're only going to be in this house for two months out of the year, you guys, it'd be tempting to get something crazy and be like, You know, big and flashy, but I wouldn't. I would go really conservative on the first home. I would put as much down as possible, even pay cash for it. And again, you guys will just be back two months at a time. And that's going to grow so much in your home value over the next few years. That but time you come back, you know, full time.

Even if it's in five years, there's a good chance you could sell that, take some of this cash that you've been accumulating over the fast, and then go get a great home that you guys will be in year round. So I think it's a really smart idea. Yes, I would go cash forward. If you can, again, it can be something, you know, really conservative, but paying cash for it would be a great. But if not, you know, you can just put down maybe 50% or 75% down. Definitely. It would be great and pay cash, yeah, for a car.

But start that investment, Chris. You can check out our smartvester pros if you go to Ramsey Solutions.com and sit down with an investment professional and really work through some of these numbers with them too because you guys have some great opportunity to do some amazing things. And you already have, Chris, like, well done. I just, I applaud you for the decisions you got. have made.