What The Fed is Happening with Interest Rates?! with Mark Aalto

Justin Stoddart  
Hey, welcome back to the Think Bigger Real Estate Show. I'm your host, Justin Stoddard. Today's episode, we're gonna cover three points. Why did rates go down? Why did they spike back up? And now what can we expect with the recent fed changes of moving the rates from zero to 0.25? I have with me today an amazing individual that's going to help us with that. Here's what I want you to know is that the purpose of this show, again, is to help you to think bigger. My personal mission is to inspire you actually to wake you up to the potential that's inside of you, and then to inspire you and help you to live in pursuit of that potential. Today's guest again, his name is Mark Aalto. He's been a loan officer for over 27 years, been in the industry for over 29 years. And during that timeframe, he's done between 4,500 & 5,000 loans. Needless to say, he's been a student of the market he's been a student of patterns and what causes rates to go up what causes rates to go down, and we are happened to be in very uncertain times right now and that we are trying To figure out what the Fed is going on with rates, Mark, you, thank you for coming on. Mark, thank you for coming on the show today.

Mark Aalto  
It's my pleasure, man. It's always nice to well, you always inspire me, man. So it's good to be part of this. And I hope that I can shed some light and help a little bit with what's going on and why and all that other good stuff. You

Justin Stoddart  
know, I appreciate you mark, because you really hand selected to kind of be the spokesperson today because you're very much a kind of a giving soul. You know, you're constantly reaching out educating the marketplace, helping people to really understand, hey, here's the changes, here's what you can expect. So because of your kind of outward reach constantly educating all of us, I thought, you know, you're the, you're a perfect person to bring on to really help us understand kind of first question, which is, you know, rates dropped all the way down to 3.29%. Can you give us just an understanding as maybe what caused that and and kind of what causes rates to go down like that?

Mark Aalto  
Well, and just to kind of start this off, so uncertainty is nothing new, right. And the bond market is ultimately, what rates are tied to. So I don't know that I'm necessarily the most technical loan officer out there in terms of explaining all this stuff. But hopefully this will be in a way that folks will understand. So if you want to rewind a little bit, so we rewind back to November of 2016. So the night before, it was, a lot of people thought that Hillary was going to be elected. And this is not political on my part, I want to make sure that everybody knows that you saw the stock futures, which is how people are looking to see what the stock market's gonna do. The next day was literally way down. And so a lot of us as loan officers thought, Hey, you know, rates are going to go from three and a quarter, which is around where they were, at the time, even lower. And what ended up happening instead is that Trump got elected, which is something that the market didn't expect. That's the important piece is not so much that a person got elected. Instead, it was a person that people didn't expect to get elected. And so over the course of just three days, we had rates go up about three quarters of a percent. In other words, volatility is nothing new to this industry. And basically from that point, In November of 2016, until about November 8 2018, rates were on a gradual climb. And so as loan officers, we would just basically take an application and lock it as soon as we could, because we knew that rates were going to get worse. And so what's happened basically, since November of 2018, is rates have been gradually going down. And the reason why that's important is because it has been gradual, it's not been sudden, it's been something where, when it comes to the markets in general, they don't like a lot of volatility. And so so here's something that I think everybody should know, that can help you out. So when there are periods of times when there's volatility, people that invest in the stock market, we're talking about people that have a lot of money or even might be mutual funds, hedge funds, all that other good stuff. What they end up doing is they were looking for a safer place to put their money. They're worried that basically by investing in the stock market, it's not the right place to put their money. They're looking for something safer. The safest thing is treasuries, right. So if you're looking for something that's a guaranteed investment, treasuries are the most safe thing that there Is the next the next rung up, something that's going to pay you a little bit higher rate of return, but still is considered safe are mortgage backed securities. So that's just a very broad background and a way of saying, okay, when when the markets are crazy when there's a lot of tumultuous stuff going on, people have a flight to safety and traditionally mortgage backed securities or a flight to safety. So what you saw from November of 2018, until, you know, about two weeks ago, was that mortgage backed securities were attractive because whether it was trade chalk talks with China and all the different stuff that was going on with that, whether it was a Coronavirus, all these different things, people were looking for a safe place to put their money because they were worried about the stock market. Now, if you talk to a loan officer last Monday versus today, it would have been totally different conversation because we just had a day after day after day after day of rates improving and the mortgage backed securities doing better. So in other words, we're we track what goes on in the bond market. The bond market is what actually makes rates do what they do so. So last Monday, we actually had a situation where rates were with a lot of lenders were right around 3%, three 3% to three and a quarter percent since last Monday, we've just had so much volatility, the mortgage backed securities, the bond market has been going absolutely the opposite direction. I know this was a way more long winded answer to what your original question was, which is just basically what caused them to go down, right. So what caused them to go down was it was something gradual, there was uncertainty, people were looking for a safer place to put their money. 

Justin Stoddart  
So In short, if I could simplify that, and again, I think part of what we're doing here is that probably most real estate agents understand this, you know, to a large degree, but really what we're doing is giving them very simple language that they can then take and give to their clients, right? Because even if it makes sense in their brain, they've got clients that are totally confused as to what's going on. They're trying to give them some sort of assurance, they feel confidence to continue forward and and make the proper move for they and their family. So I'm going to simplify this you correct anything that I say? So if I were speaking to my clients, let's say that I'm a real estate agent, I'm speaking to my clients, I would say that typically the mortgage rate has an inverse relationship to the stock market, the stock market goes down, then rates tend to go down as well. Right? 

Mark Aalto  
Correct. Yes. 

Justin Stoddart  
Because people are concerned about the stock market, they're moving their money to mortgages, right? to bonds, right? Which is in causing those rates to drop, right?

Mark Aalto  
That's correct.

Justin Stoddart  
Okay. So then, again, if the stock market starts to go back up, then people have more confidence they started start to put their money in the stock market. Money leaves mortgage backed securities, causing ra...