Bonds managed to begin the day sideways to slightly stronger, although the strength was more apparent in the longer end of the yield curve. Perhaps market participants could sense the impending curve flattening bias in today’s big ticket econ data. ISM Services beat the consensus and the inflation component rose for the second straight month, reaching the highest levels since March. The implications for core services inflation go without saying and the market traded it as such with a obvious bump to implied Fed Funds rates for 2024 contracts. The longer end of the curve fared better but still lost a bit of ground. Corporate bond issuance remains a background problem. Technicals may see some increased focus for the rest of the week without much by way of meaningful data until next week’s CPI.
Trade Gap
-65b vs -68b f’cast, -63.7b prev
S&P PMI
50.2 vs 50.4 f’cast, 52.0 prev
ISM Services PMI
54.5 vs 52.5 f’cast, 52.7 prev
09:36 AM
Sideways to slightly stronger overnight and little-changed so far during domestic trading. 10yr down 2bps at 4.244. MBS up 1 tick (0.03)
10:26 AM
Weaker after ISM data. MBS down an eight to a quarter point. 10yr up 2bps at 4.284.
03:56 PM
Essentially sideways since 11am. 10yr up 3.6bps at 4.30. MBS down 5 ticks (.19).
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Whoa, have you seen what just happened to interest rates!?
Suddenly, after at least fourteen years of our financial world being mostly the same, somebody flipped over the table and now things are quite different.
Interest rates, which have been gliding along at close to zero since before the Dawn of Mustachianism in 2011, have suddenly shot back up to 20-year highs.
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Which brings up a few questions about whether we need to worry, or do anything about this new development.
Is the stock market (index funds, of course) still the right place for my money?
What if I want to buy a house?
What about my current house – should I hang onto it forever because of the solid-gold 3% mortgage I have locked in for the next 30 years?
Will interest rates keep going up?
And will they ever go back down?
These questions are on everybody’s mind these days, and I’ve been ruminating on them myself. But while I’ve seen a lot of play-by-play stories about each little interest rate increase in the financial newspapers, none of them seem to get into the important part, which is,
“Yeah, interest rates are way up, butwhat should I do about it?”
So let’s talk about strategy.
Why Is This Happening, and What Got Us Here?
Interest rates are like a giant gas pedal that revs the engine of our economy, with the polished black dress shoe of Federal Reserve Chairman Jerome Powell pressed upon it.
For most of the past two decades, Jerome’s team and their predecessors have kept the pedal to the metal, firing a highly combustible stream of easy money into the system in the form of near-zero rates. This made mortgages more affordable, so everyone stretched to buy houses, which drove demand for new construction.
It also had a similar effect on business investment: borrowed money and venture capital was cheap, so lots of entrepreneurs borrowed lots of money and started new companies. These companies then rented offices and built factories and hired employees – who circled back to buy more houses, cars, fridges, iPhones, and all the other luxurious amenities of modern life.
This was a great party and it led to lots of good things, because we had two decades of prosperity, growth, raising our children, inventing new things and all the other good things that happen in a successful rich country economy.
Until it went too far and we ended up with too much money chasing too few goods – especially houses. That led to a trend of unacceptably fast Inflation, which we already covered in a recent article.
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So eventually, Jay-P noticed this and eased his foot back off of the Easy Money Gas Pedal. And of course when interest rates get jacked up, almost everything else in the economy slows down.
And that’s what is happening right now: mortgages are suddenly way more expensive, so people are putting off their plans to buy houses. Companies find that borrowing money is costly, so they are scaling back their plans to build new factories, and cutting back on their hiring. Facebook laid off 10,000 people and Amazon shed 27,000.
We even had a miniature banking crisis where some significant mid-sized banks folded and gave the financial world fears that a much bigger set of dominoes would fall.
All of these things sound kinda bad, and if you make the mistake of checking the news, you’ll see there is a big dumb battle raging as usual on every media outlet. Leftists, Right-wingers, and anarchists all have a different take on it:
It’s the President’s fault for printing all that money and running up the debt! We should have Fiscal Discipline!
No, it’s the opposite! The Fed is ruining the economy with all these rate rises, we need to drop them back down because our poor middle class is suffering!
What are you two sheeple talking about? The whole system is a bunch of corrupt cronies and we shouldn’t even have a central bank. All hail the true world currency of Bitcoin!!!
The one thing all sides seem to agree on is that we are “experiencing hard economic times” and that “the country is headed in the wrong way”.
Which, ironically, is completely wrong as well – our unemployment rate has dropped to 50-year lows and the economy is at the absolute best it has ever been, a surprise to even the most grounded economists.
The reality? We’re just putting the lid back onto the ice cream carton until the economy can digest all the sugar it just wolfed down. This is normal, it happens every decade or two and it’s no big deal.
Okay, but should I take my money out of the stock market because it’s going to crash?
This answer never changes, so you’ll see it every time we talk about stock investing: Holy Shit NO!!!
The stock market always goes up in the long run, although with plenty of unpredictable bumps along the way. Since you can’t predict those bumps until after they happen, there is no point in trying to dance in and out of it.
But since we do have the benefit of hindsight, there are a few things that have changed slightly: From its peak at the beginning of 2022 until right now (August 2023 as I write this), the overall US market is down about 10%. Or to view it another way, it is roughly flat since June 2021, so we’ve seen two years with no gains aside from total dividends of about 3%.
Since the future is always the same, unknowable thing, this means I am about 10% more excited about buying my monthly slice of index funds today than it was at the peak.
Should I start putting money into savings accounts instead because they are paying 4.5%?
This is a slightly trickier question, because in theory we should invest in a logical, unbiased way into the thing with the highest expected return over time.
When interest rates were under 1%, this was an easy decision: stocks will always return far more than 1% over time – consider the fact that the annual dividend payments alone are 1.5%!
But there has to be some interest rate at which you’d be willing to stop buying stocks and prefer to just stash it into the stable, rewarding environment of a money market fund or long-term bonds or something else similar. Right now, if a reputable bank offered me, say, 12% I would probably just start loading up.
But remember that the stock market is also currently running a 10% off sale. When the market eventually reawakens and starts setting new highs (which it will someday), any shares I buy right now will be worth 10% more. And then will continue going up from there. Which quickly becomes an even bigger number than 12%.
In other words, the cheaper the stocks get, the more excited we should be about buying them rather than chasing high interest rates.
As you can see, there is no easy answer here, but I have taken a middle ground:
I’m holding onto all the stocks I already own, of course
BUT since I currently have an outstanding margin loan balance for a house I helped to buy with several friends (yes this is #3 in the last few years!), I am paying over 6% on that balance. So I am directing all new income towards paying down that balance for now, just for peace of mind and because 6% is a reasonable guaranteed return.
Technically, I know I would probably make a bit more if I let the balance just stay outstanding, kept putting more money into index funds, and paid the interest forever, but this feels like a nice compromise to me
What if I want to Buy a House?
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For most of us, the biggest thing that interest rates affect is our decisions around buying and selling houses. Financing a home with a mortgage is suddenly way more expensive, any potential rental house investments are suddenly far less profitable, and keeping our old house with a locked-in 3% mortgage is suddenly far more tempting.
Consider these shocking changes just over the past two years as typical rates have gone from about 3% to 7.5%.
Assuming a buyer comes up with the average 10% down payment:
The monthly mortgage payment on a $400k house has gone from about $1500 at the beginning of 2022 last year to roughly $2500 today. Even scarier, the interest portion of that monthly bill has more than doubled, from $900 to $2250!
For a home buyer with a monthly mortgage budget of $2000, their old maximum house price was about $500,000. With today’s interest rates however, that figure has dropped to about $325,000
Similarly, as a landlord in 2022 you might have been willing to pay $500k for a duplex which brought in $4000 per month of gross rent. Today, you’d need to get that same property for $325,000 to have a similar net cash flow (or try to rent each unit for a $500 more per month) because the interest cost is so much higher.
And finally, if you’re already living in a $400k house with a 3% mortgage locked in, you are effectively being subsidized to the tune of $1000 per month by that good fortune. In other words, you now have a $12,000 per year disincentive to ever sell that house if you’ll need to borrow money to buy a new one. And you have a potential goldmine rental property, because your carrying costs remain low while rents keep going up.
This all sounds kind of bleak, but unfortunately it’s the way things are supposed to work – the tough medicine of higher interest rates is supposed to make the following things happen:
House buyers will end up placing lower bids which fit within their budgets.
Landlords will have to be more discerning about which properties to buy up as rentals, lowering their own bids as well.
Meanwhile, the current still-sky-high prices of housing should continue to entice more builders to create new homes and redevelop and upgrade old buildings and underused land, because high prices mean good profits. Then they’ll have to compete for a thinner supply of home buyers.
The net effect of all this is that prices should stop going up, and ideally fall back down in many areas.
When Will House Prices Go Back Down?
This is a tricky one because the real “value” of a house depends entirely on supply and demand. The right price is whatever you can sell it for. However, there are a few fundamentals which influence this price over the long run because they determine the supply of housing.
The actual cost of building a house (materials plus labor), which tends to just stay pretty flat – it might not even keep up with inflation.
The value of the underlying land, which should also follow inflation on average, although with hot and cold spots depending on which cities are popular at the time.
The amount of bullshit which residents and their city councils impose upon house builders, preventing them from producing the new housing that people want to buy.
The first item (construction cost) is pretty interesting because it is subject to the magic of technological progress. Just as TVs and computers get cheaper over time, house components get cheaper too as things like computerized manufacturing and global trade make us more efficient. I remember paying $600 for a fancy-at-the-time undermount sink and $400 for a faucet for my first kitchen remodel in the year 2001. Today, you can get a nicer sink on Amazon for about $250 and the faucet is a flat hundred. Similarly, nailguns and cordless tools and easy-to-install PEX plumbing make the process of building faster and easier than ever.
On the other hand, the last item (bullshit restrictions) has been very inflationary in recent times. I’ve noticed that every year another layer of red tape and complicated codes and onerous zoning and approval processes gets layered into the local book of rules, and as a result I just gave up on building new houses because it wasn’t worth the hassle. Other builders with more patience will continue to plow through the murk, but they will have less competition, fewer permits will be granted, and thus the shortage of housing will continue to grow, which raises prices on average.
Thankfully, every city is different and some have chosen to make it easier to build new houses rather than more difficult. Even better, places like Tempe Arizona are allowing good housing to be built around people rather than cars, which is even more affordable to construct.
But overall, since overall US house prices adjusted for inflation are just about at an all-time high, I think there’s a chance that they might ease back down another 25% (to 2020 levels). But who knows: my guess could prove totally wrong, or the “fall” could just come in the form of flat prices for a decade that don’t keep up with inflation, meaning that they just feel 25% cheaper relative to our higher future salaries.
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When Will Interest Rates Go Back Down?
The funny part about our current “high” interest rates is that they are not actually high at all. They’re right around average.So they might not go down at all for a long time.
Remember that graph at the beginning of this article? I deliberately cropped it to show only the years since 2009 – the long recent period of low interest rates. But if you zoom out to cover the last seventy years instead, you can see that we’re still in a very normal range.
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But a better answer is this one: Interest rates will go down whenever Jerome Powell or one of his successors determines that our economy is slowing down too much and needs another hit from the gas pedal. In other words, whenever we start to slip into a genuine recession.
In order to do that however, we need to see low inflation, growing unemployment, and other signs of an economy that’s not too hot. And right now, those things keep not showing up in the weekly economic data.
You can get one reasonable prediction of the future of interest rates by looking at something called the US Treasury Yield Curve. It typically looks like this:
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What the graph is telling you is that as a lender you get a bigger reward in exchange for locking up your money for a longer time period. And way back in 2018, the people who make these loans expected that interest rates would average about 3.0 percent over the next 30 years.
Today, we have a very strange opposite yield curve:
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If you want to lend money for a year or less, you’ll be rewarded with a juicy 5.4 percent interest rate. But for two years, the rate drops to 4.92%. And then ten-year bond pays only 4.05 percent.
This situation is weird, and it’s called an inverted yield curve. And what it means is that the buyers of bonds currently believe that interest rates will almost certainly drop in the future – starting a little over a year from now.
And if you recall our earlier discussion about why interest rates drop, this means that investors are forecasting an economic slowdown in the fairly near future. And their intuition in this department has been pretty good: an inverted yield curve like this has only happened 11 times in the past 75 years, and in ten of those cases it accurately predicted a recession.
So the short answer is: nobody really knows, but we’ll probably see interest rates start to drop within 18-24 months, and the event may be accompanied by some sort of recession as well.
The Ultimate Interest Rate Strategy Hack
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I like to read and write about all this stuff because I’m still a finance nerd at heart. But when it comes down to it, interest rates don’t really affect long-retired people like many of us MMM readers, because we are mostly done with borrowing. I like the simplicity of owning just one house and one car, mortgage-free.
With the current overheated housing market here in Colorado, I’m not tempted to even look at other properties, but someday that may change. And the great thing about having actual savings rather than just a high income that lets you qualify for a loan, is that you can be ready to pounce on a good deal on short notice.
Maybe the entire housing market will go on sale as we saw in the early 2010s, or perhaps just one perfect property in the mountains will come up at the right time. The point is that when you have enough cash to buy the thing you want, the interest rates that other people are charging don’t matter. It’s a nice position of strength instead of stress. And you can still decide to take out a mortgage if you do find the rates are worthwhile for your own goals.
So to tie a bow on this whole lesson: keep your lifestyle lean and happy and don’t lose too much sweat over today’s interest rates or house prices. They will probably both come down over time, but those things aren’t in your control. Much more important are your own choices about earning, saving, healthy living and where you choose to live.
With these big sails of your life properly in place and pulling you ahead, the smaller issues of interest rates and whatever else they write about in the financial news will gradually shrink down to become just ripples on the surface of the lake.
In the comments:what have you been thinking about interest rates recently? Have they changed your decisions, increased, or perhaps even decreased your stress levels around money and housing?
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* Photo credit: Mr. Money Mustache, and Rustoleum Ultra Cover semi gloss black spraypaint. I originally polled some local friends to see if anyone owned dress shoes and a suit so I could get this picture, with no luck. So I painted up my old semi-dressy shoes and found some clean-ish black socks and pants and vacuumed out my car a bit before taking this picture. I’m kinda proud of the results and it saved me from hiring Jerome Powell himself for the shoot.
Bonds lost ground today and it definitely wasn’t as simple as traders having second thoughts about the strength of today’s jobs report. While it’s true that the 3.8% unemployment rate overstated last month’s shift (due to the rise in the participation rate), it’s also true that this is the first time since 2020 that NFP has been under 200k for 2 consecutive months (revisions are unlikely to change that, given the prevailing trend). The lopsided nature of the selling pointed to yield curve considerations and the odd combination of positioning for an NFP Friday, a Friday before a 3 day weekend, and the first day of a new month all at the same time. It wasn’t officially an early closer, but the bond market got in and got out by lunch, leaving 10yr yields 7.5bps higher. MBS only lost an eighth and change due to curve steepening (shorter-term yields fared better and MBS aren’t expected to be as long-lived as 10yr Treasuries).
NFP
187k vs 170k f’cast, 157k prev
Unemployment
3.8 vs 3.5 f’cast/prev
Participation Rate
62.8 vs 62.6 prev
Wages
0.2 vs 0.3 f’cast, 0.4 prev
ISM Manufacturing PMI
47.6 vs 47.0 f’cast, 46.4 prev
Construction Spending
0.7 vs 0.5 f’cast, 0.6 prev
08:57 AM
Initially stronger after jobs data but gains evaporating now. 10yr down only 1.1bps at 4.095. MBS up 3 ticks (0.09), but down an eighth from the highs.
09:43 AM
Well into the red now with 10s up 3.2bps at 4.134 and MBS down almost an eighth.
10:44 AM
Weakest levels of the day with 10yr up 7.5bps at 4.18 and MBS down 3/8ths.
03:09 PM
Decent recovery after the last update with 10yr yields grinding down to 4.17% and MBS now down only an eighth of a point.
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By Prof. Viral V. Acharya, C.V. Starr Professor of Economics, Department of Finance, New York University Stern School of Business (NYU-Stern), and Satish Mansukhani, Managing Director, Investment Strategy, Rithm Capital
Since the onset of the Federal Reserve’s (the Fed’s) monetary tightening in 2022, the 30-year fixed mortgage rate in the United States (US) has gapped out to 7 percent. Around 300 basis points (bps) at present above the 10-year US Treasury yield (see Figure 1), this spread has historically been stable at around 200 bps; this was the case even during the pre-pandemic interest-rate hikes (2016-19) and quantitative tightening (QT, 2017-20) episodes.
Why is this time different?
We explain below that the current break from this trend is caused critically by the interplay of the Fed’s and domestic banks’ balance sheets. Changes in the risk appetites of institutional investors (bank and non-bank) and the profitability considerations of mortgage lenders have combined with this interplay to produce an unprecedentedly fast and amplified passthrough of monetary tightening to mortgage rates.
Deconstructing the 30-year mortgage rate
In addition to the 10-year Treasury yield, the 30-year primary mortgage rate serves as a commonly cited benchmark for the US economy and financial markets. Two contributors drive the spread between this mortgage rate and the Treasury yield.
The first contributor is the yield offered on the benchmark mortgage-backed securities (MBS) issued by government-sponsored enterprises Fannie Mae and Freddie Mac—the so-called “agency MBS basis”. This basis reflects the risk appetites of institutional investors to absorb or “warehouse” mortgage interest-rate risks on their balance sheets.
The second contributor is the profitability margin for mortgage lenders, known as the “primary-secondary spread”. It captures not only the market power of lenders in mortgage markets but also the banking sector’s balance-sheet constraints in intermediating for the real economy.
Consider, in turn, the 10-year Treasury yields and each of these contributors to the mortgage spread.
Punch #1: Higher 10-year US Treasury yields, driven up by real rates
Excessive monetary and fiscal stimulus throughout the pandemic combined with supply-side shocks to induce a surge in inflation since 2021. Until the last few months, this bout of inflation appeared rather unrelenting. In response, the Fed has tightened its monetary policy aggressively to cool inflation and the economy, and the 10-year Treasury yields, which were just 50 bps in 2020, are now close to 4 percent, a full 350 bps higher.
Viewed through another lens, the 10-year real rate has risen from a pandemic low of negative 100 bps to a post-GFC (Global Financial Crisis of 2007-08) high of 150 bps. Immediately before the pandemic, and even during the rate-hike and QT episodes of the mid-2010s, this real rate stood at barely 50 bps. The overall rise in real rates has also lifted mortgage rates.
Punch #2: A wider agency MBS basis, driven by higher volatility and a reversal in technicals
The agency MBS basis can be considered the market price of the unique option presented to US borrowers to refinance their mortgages or lock in attractive fixed rates (as is the case currently). The higher the volatility and the wider the outlook for the range of interest rates, the higher the price of this option. Compared to the mid-2010s’ rate hikes and QT, agency MBS spreads are 60 to 80 bps wider today.
For about 12 months after the onset of monetary tightening in March 2022, the 30-day rolling correlation of the agency MBS basis to interest-rate volatility (MOVE Index) remained high, ranging from 60 to 80 percent (that the two series were highly correlated until March 2023 can be seen in Figure 2).
However, the “technicals” of the MBS market today have shifted dramatically, with the Fed and domestic banks as the largest holders of this asset class. A key US bank dynamic has emerged since March 2023, given the collapses of three regional banks: Silicon Valley Bank (SVB), First Republic Bank and Signature Bank. In their wake, the agency MBS basis’s correlation to rate volatility has dipped, as seen by the rising agency MBS basis and declining MOVE Index. In contrast, the correlation of basis to the inverse of the stock valuation of regional banks has risen (again, see the individual series in Figure 2), reaching a peak of 35 percent in May 2023, marking the low in the regional bank index and simultaneously a high in the basis.
Punch #3: Wider mortgage-lender margins, driven by low volumes and high volatility
Turning to mortgage-lender margins, mortgage lending is a volume business in terms of the profits it generates for lenders and largely depends on refinancing transactions. Today’s high mortgage rates place a significant disincentive in the economics of the majority of US borrowers who have “locked in” at post-pandemic ultra-low rates, shriveling down lender volumes to mostly purchase transactions. The resulting low volume of home sales is thus translating into high competition among mortgage lenders.
High competition suggests banks should be willing to tighten margins. However, lender margins are modestly higher today than in the mid-2010s’ rate-hike and QT episodes, ranging back then between 90 and 100 bps compared to the present 110 and 120 bps. A key factor driving this margin wider is (again!) higher rate volatility, which increases the pipeline hedging costs of mortgage lenders during the period they commit to making a loan to closing and eventually pooling the loan into an MBS through securitization. This balance-sheet effect seems to have swamped the competitive effect.
Amplifying it all: banks’ and the Fed’s balance sheets moving in tandem
An additional factor has, however, made the confluence of these three effects even more potent.
The GFC, notably the distress in the housing and mortgage sectors, depleted both the capital and liquidity of banks, the largest mortgage lenders then. The nature of the post-GFC regulations and rules, notably the Dodd-Frank Act (Dodd-Frank Wall Street Reform and Consumer Protection Act), has made it costlier for banks to step into mortgages and MBS. In fact, a number of banks stepped away altogether from mortgage lending and servicing. The Fed filled this gap with some of its post-GFC quantitative-easing (QE) programs to support the mortgage and housing sectors. This backdrop led to relatively low levels of stable growth in the bank ownership of mortgages and MBS leading into the mid-2010s (see Figure 3).
However, as the Fed then halted QE and eventually embarked on QT, other rules, especially the favorable treatment of agency MBS as “high-quality liquid assets” in calculating the liquidity coverage ratio (LCR), led to a rise in the banks’ demands for MBS. This helped stabilize the MBS sector. And although banks made some (unrecognized) losses on their securities holdings by the end of the tightening cycle, cumulatively, the losses remained in aggregate below $75 billion.
Progression from this period into the pandemic saw the balance-sheet holdings of banks and the Fed paralleling (again, see Figure 3). The substantial stimulus led to an abundance of deposits (insured and uninsured) and low-yielding reserves at banks—but due to low demand in 2020, also a relative absence of sufficiently higher-yielding corporate loans in which to invest. The ultra-low rates and flat yield curve thus led to a search for yields, driving banks to buy Treasuries and agency MBS instead.
The post-pandemic monetary tightening of 2022 thus started with a far greater concentration of liquid-asset holdings in the hands of two large, correlated sets of balance sheets—namely, the Fed’s and the banks’. At present, new MBS issuances essentially have demand from neither, implying that the agency MBS basis is driven almost entirely by the risk appetites of non-bank institutional investors. As these investors are far more prone to rollover risks from heightened volatility, they demand greater risk premiums than banks typically would. This has significantly amplified the triple punch delivered to mortgage rates by monetary tightening.
What’s next?
An important lesson is that the unprecedented scale of fiscal and monetary stimulus during the pandemic worked through the commercial-banking system, creating the path dependency in how monetary tightening is now playing out, especially for mortgage markets.
Paradoxically, as mortgage rates rise, the willingness of labor in the US to adjust to sectoral demands lessens as the lock-in effects of ultra-low mortgage rates keep households from moving. This, in turn, keeps labor markets tight, wages high and inflation stubborn.
The Fed is thus caught between a rock and a hard place, with the demand- and supply-side effects of its tightening working in opposite directions. Which way will the pendulum swing? It is hard to know, but this may precisely be why interest-rate volatility has remained high.
ABOUT THE AUTHORS
Prof. Viral V. Acharya is the C.V. Starr Professor of Economics in the Department of Finance at the New York University Stern School of Business (NYU-Stern). He was the Deputy Governor at the Reserve Bank of India (RBI) from January 2017 to July 2019, in charge of Monetary Policy, Financial Markets, Financial Stability and Research.
Satish Mansukhani is the Managing Director, Investment Strategy, at Rithm Capital, a financial-services firm headquartered in New York City. In his prior roles as a sell-side strategist at Bank of America, Credit Suisse and Bear Stearns, Satish was perennially ranked for his work by Institutional Investor magazine.
For years, residents in Solano County heard about a mysterious group buying up thousands of acres of farmland and making millionaires out of property owners. The agricultural land had been owned by the same families for decades — some of it for more than a century.
But the company, Flannery Associates, did not say what its plans were for the land, dotted with towering wind turbines and sheep grazing on pastureland. It paid several times market value and made offers on properties that were not for sale, according to officials familiar with the land purchases.
Then, last week, a survey was sent to residents asking them what they thought about “a new city with tens of thousands of new homes, a large solar energy farm, orchards with over a million new trees, and over ten thousand acres of new parks and open space,” according to a screenshot of the survey shared with the Los Angeles Times.
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That’s when it became clear that Flannery Associates had big plans for the rural landscape.
Over a five-year period, the company became the largest landowner in Solano County after purchasing more than 55,000 acres of undeveloped land. The company has paid more than $800 million since 2018, according to court records.
U.S. Rep. John Garamendi, who represents the region, said for years he and other officials were unable to determine who was behind the dizzying land grab. Flannery Associates has purchased land that was restricted to open space and agricultural purposes under a state conservation program.
The company seeks to rezone the land, which would require approval by multiple state and county agencies and wouldn’t be as simple as asking residents to vote on the issue, officials familiar with the process said. But the lack of residential zoning in the area does not seem to be a factor for Flannery Associates.
Since its buying jag began, the company has filed suit in federal court against a group of families the firm purchased property from, seeking $510 million. Flannery Associates claims the families conspired to inflate their property values in a scheme to get more money.
Garamendi (D-Walnut Grove) lambasted the company for how it has handled the purchases and for not working with local residents.
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“Flannery Associates is using secrecy, bully and mobster tactics to force generational farm families to sell,” Garamendi said during an informational committee hearing on Tuesday that addressed the company’s actions.
For years, residents and politicians speculated that Flannery Associates was backed by foreign investors seeking to spy on Travis Air Force Base. Located in Solano County, the base is one of the busiest military facilities in the nation. Most of the land surrounding the base is now owned by Flannery Associates, according to county documents.
Some of the company’s financial backers were revealed in an article last week by the New York Times, and they include a cadre of tech entrepreneurs and venture capitalists.
On the eastern end of Solano County, the city of Rio Vista is now surrounded by Flannery Associates land. Mayor Ronald Kott said that, like many Solano County officials, he had not been approached by anyone from the company to discuss plans for the land.
Although he’s now aware of the company’s goals and some of the financial backers, he’s still unsure how his city of 10,000 residents found itself surrounded by land owned by a group of tech billionaires.
“I have more questions than answers,” Kott said. “Our destiny is going to be determined by whatever they’re going to do.”
Flannery Associates has said little since it was formed as a limited liability company in the state of Delaware in 2018. The company’s actions were first reported by ABC7’s San Francisco Bay Area news station, KGO, which said a mysterious company was purchasing large amounts of land.
Flannery Associates is led by Jan Sramek, a former Goldman Sachs investor who found fame and fortune by the time he was 22, according to a 2010 Business Insider article. Sramek previously worked out of Goldman’s offices in London, but his LinkedIn profile now lists Fairfield, Calif., in Solano County as his primary location.
In a self-help book he co-wrote, Sramek says if given the chance to give his younger self a bit of advice, he would quote Ayn Rand: “The question isn’t who is going to let me; it’s who is going to stop me.”
He did not immediately respond to requests for comment.
For years, Garamendi and U.S. Rep Mike Thompson (D-St. Helena) tried to pierce through the opaque veil that surrounded Flannery Associates. Then, in the last week, representatives of the company attempted to arrange sit-down meetings with the Congress members and the survey was sent out to residents.
The survey said that the issue of a new city might be on next year’s ballot, which was news to Garamendi and Thompson. There have been no efforts made by any groups to get a new measure on the ballot for this project, according to officials. The survey also said the developers would replace the county’s existing aqueduct — calling it “one of the most polluted in California” — generate tax revenue for schools and be entirely funded by private sector money.
Thompson said the company’s actions had raised food and national security concerns. He’s asked the U.S. Air Force, the Treasury Department, the Defense Department and the FBI to investigate the land purchases. Thompson met with representatives from the company, including Sramek, according to KGO.
“And I don’t think they had a clear understanding of the significance of livestock in Solano County,” Thompson said. “And it was my impression that they kind of pooh-poohed the agricultural value of the land.”
Garamendi plans to meet with representatives from Flannery Associates at a later time, according to his office.
Solano County Supervisor Monica Brown is not familiar with Silicon Valley and spent most of her professional career as a schoolteacher. She heard from friends who received the survey and wondered if the company had the best interests of the county’s current residents in mind.
“We’re growing food and helping people. Why would you stop economic growth like that?” she told the Los Angeles Times. “Why would they spend $800 million and not be transparent about it?”
Flannery Associates has purchased more than 140 parcels of land, according to court records and county assessor data. That number is growing every day, officials say.
But in its lawsuit, the company claims that it overpaid and is seeking to claw back some of its money.
Attorneys for Flannery Associates have referenced personal relationships and text messages among neighbors in court documents — neighbors who could be influenced, they argue, by a scheme to drive up asking prices for the land.
The lawsuit has had a chilling effect on some landowners in the Montezuma Hills and Jebson Prairie area of the county. Multiple residents in the area declined to comment about the company for fear of being named in a lawsuit.
Others who spoke on condition of anonymity to avoid retaliation by the company say they feel as though Flannery Associates will target anyone who speaks out about the company’s aggressive tactics to buy land.
Garamendi called the lawsuit a “heavy-handed, despicable intimidation tactic.” He said that the company managed to purchase all the land without any of the current governmental safeguards in place to flag the issue. He said that, in the future, information about large land sales, and who is buying and selling, would be vital for lawmakers and residents.
Thompson introduced a bill that was inspired by the Flannery Associates land purchases that would provide more effective tools for state agencies to investigate large land sales.
Through a spokesperson, Flannery Associates said members of the company “care deeply about the future of Solano County and California and believe their best days are ahead.”
The company said the project aims to bring “good-paying jobs, affordable housing, clean energy, sustainable infrastructure, open space, and a healthy environment” to Solano County.
“We are excited to start working with residents and elected officials, as well as with Travis Air Force Base, on making that happen,” spokesperson Brian Brokaw said.
The company says it resorted to secrecy while purchasing the land to avoid rampant real estate speculation. But it has not disclosed specific details about the scope of its project. Representatives for Flannery Associates are meeting with community leaders to present their vision, according to Brokaw.
Michael Moritz, venture capitalist and longtime San Francisco resident, is one of the financial backers behind the company. In a 2017 email viewed by the New York Times, Moritz described an opportunity to invest in a new California city. He explained how investors could transform farmland into a bustling metropolis.
Sequoia Heritage, the $15-billion wealth management firm Moritz founded in 2010, did not immediately respond to requests for comment.
But in a February New York Times opinion piece, Moritz described some of his frustration with San Francisco and how the city had become “a prize example of how we Democrats have become our own worst enemy.”
He described legislators who deceived voters with tweaks and rule changes to the city’s charter so they could stay in power and drive seismic shifts in the local government.
“The core of the issue, in San Francisco and other cities, is that government is more malleable at the city level than at higher levels of government,” Moritz wrote. “If the U.S. Constitution requires decades and a chisel and hammer to change, San Francisco’s City Charter is like a live Google doc controlled by manipulative copy editors.”
Other financial backers with Flannery Associates include LinkedIn co-founder Reid Hoffman; Andreessen Horowitz venture capital firm investors Marc Andreessen and Chris Dixon; payments company Stripe co-founders Patrick and John Collison; Emerson Collective founder Laurene Powell Jobs; and entrepreneurs turned investors Nat Friedman and Daniel Gross, a Flannery Associates spokesperson confirmed.
Although those names were not repeated at an agricultural committee hearing on Tuesday, lawmakers were thinking of the financial backers’ actions.
Flannery Associates’ land buys threaten the makeup of eastern Solano County, mainly the land under the California Land Conservation Act, which sets aside properties for agricultural purposes and open space. The penalty for not obeying that policy does not seem to dissuade Flannery Associates, former West Sacramento Mayor Christopher Cabaldon said during the committee hearing.
The act, also known as the Williamson Act, can include a fee for the incompatible structures built on the land. For billionaire property owners, that could just be seen as the price of doing business.
“In some sense,” he said, the conservation program has “been like a flag that says, ‘Buy here.’”
The Flannery Associates project illustrates just how weak current tools are for dealing with a project of this size. Secrecy further hampers state regulators unaware of a buyer’s intent for the land, Cabaldon said.
Brokaw, the Flannery Associates spokesperson, said the company wouldn’t comment on specific issues brought up during the committee hearing but was meeting with county and state leaders to address their concerns.
Officials and landowners worry that much of the infrastructure needed to build a new city is just not present in eastern Solano County. And an influx of development would almost certainly drive out any farmers from the region.
But another scenario that could present itself is Flannery Associates moving ahead with its project only to have it fall apart years later.
“Even if the project is rejected locally … you can’t reset the clock,” Cabaldon said. “You cannot turn it back and say, ‘OK, no harm, no foul. Let’s just return to the way that this community was two years ago.’ Because the owners will be gone, the family farmers will have left.”
Times staff writers Jessica Garrison and Ryan Fonseca contributed to this report.
Collaboration within the industry has proven valuable in these circumstances. “Networking with real estate agents, appraisers, and other professionals in the field enhances our ability to serve clients comprehensively,” added Thompson. As the mortgage landscape continues to evolve, staying interconnected allows brokers to stay ahead of the curve and better assist clients. Scott Morgan, a … [Read more…]
Since 2015, my forecasting models have predicted the 10-year Treasury yield would stay in the range of 1.60% to -3%. Tangential to this, the next recession treasury yields, and thus mortgage rates, would drop because lower growth would drive yields and rates lower. The four-decade prolonged downturn in the rate of growth in the economy and inflation mirrors falling bond yields and mortgage rates.
Before the pandemic, it was hard work trying to convince other economists that we would see a 30-year fixed mortgage rate drop below 3%. In 2018, a crafty photographer caught the bemused look on my face when one of my colleagues chastised me for predicting rates would go lower instead of higher.
Evangelizing a consistent thesis for years on end is a bit boring, but I would rather be dull and steady than the alternative. I admit I am a big fan of sticking to economic models that allow for reliable predictions, repetitive as they may be, until different variables change the course of the economy.
Today, in the middle of a world pandemic, my bond market model is allowing for a 30-year fixed mortgage rate to drop as low as 1.875% – but the questions remain, will it, and what will it take to get there?
Earlier this year, before the 10-year yield broke under 1%, I wrote about the one thing that could drive yields lower. In an article for HousingWire published on Feb. 3, I invoked chaos theory and the butterfly effect to explain how a virus outbreak in a faraway country could drive stocks, bonds, and GDP down in the US.
For Bankrate.com, before the 10-year yield broke under 1%, I predicted that recessionary yields would be in the range of -0.21% – 0.62%. Yes, that is a negative 10-year yield.
In the previous economic cycle, GDP went negative three times, and each time the dip was quickly reversed. It took a pandemic, the most significant health and financial crisis in recent history, to put the U.S. into a recession. It wasn’t systemic problems but an outside force that led to the collapse of the economy.
On Monday, March 9, the morning print for the 10-year yield was 0.34%. Then a massive stock market sell-off created margin selling of the bonds, which took the yield back above 1%. Since then, bond yields retreated lower to 0.53% as of last Friday. For the most part, it has been trading above 0.62% until recently as the market waits for another disaster relief package.
Even with these historically low yields, we still have fixed mortgage rates drop below 3% but not below 2%. The question remains: What would it take to get the 10-year low enough to get a 1.875% mortgage rate on a 30-year fixed?
First and foremost, we would need to see negative yields stick with duration. The spread between the 10-year and mortgage rates has been wider during this crisis, as banks were dealing with their own mortgage market meltdown in March and April and needed time to rebalance their books. Only recently, mortgage rates have been getting better but still should be lower today.
Can we expect to see negative yields with duration? The short answer is not likely, and here’s why. The U.S. economic data is getting better, and I am not just talking about the V-shaped recovery in housing. Control retail sales showed one of the best year-over-year growth prints since the year 2000. Manufacturing survey data is positive (be skeptical about PMI data for now), and the St. Louis Financial Stress index just hit a new Covid19 low at a – 0.4612%, zero is considered normal stress.
Additionally, while we still have high unemployment, we also have a savings glut due to the CARES Act and a lack of spending options early in the crisis. As retail sales grow, the personal savings rate has fallen.
Other economic data lines are also showing improvement to the extent that we are likely seeing a rebound in the GDP in the next quarter. Also, the government, both on the fiscal and monetary side, is well embedded into the economy now in August. This is much different than what happened in March. Also, the initial fear of having a virus pandemic and not knowing what was going on in March and April is slowly leaving us.
For us to see mortgage rates drop below 2%, we would need to see a retracement of many data lines that are showing the first glimmers of economic recovery. These are the factors that could drive this to happen:
1. The U.S. government stops or significantly reduces fiscal stimulus.
2. A stock market sell-off again. Since the market is near all-time highs, a pullback is not unlikely.
3. Credit stress rises again. This is a certainty if the government does not continue with its fiscal stimulus programs.
4. A terrible winter that increases infection rates and deaths. This is the wild card for America right now. We made good progress on flattening the curve initially, and then we got sloppy. We are trying to reopen schools, have an election, and will be dealing with the natural uptick in cases due to winter sickness. Coping with the second wave of infections this winter could seriously dampen our economic progress. (I am holding out hope that by Sept. 1 the new-case growth should be down noticeably from recent highs) From this level, we have a better footing to deal with the winter. However, we need to be mindful that winter is really coming, and this isn’t a show about dragons we can choose not to watch.
It would take a lot of bad news to push mortgage rates below 2%, and that is why I am rooting against this from happening. The AB (America is Back) economic model states that we want to see the 10-year yield above 1%. In time with more consistent growth, we will get there.
So mask up and be smart. Let’s all help this recovery take off again and hope we don’t see a 30-year fix at 1.875%.
Buying a home is a big deal, both emotionally and financially. For many people, homeownership is still an essential part of the American dream. And, of course, it’s the biggest investment some will ever make. With the median price of a house hitting $428,700 in mid-2022 (ka-ching), it’s not a purchase to be made lightly.
If you’re buying a home for the first time, you may expect it to be the same as those quick, fun-and-done experiences portrayed on reality TV shows. In truth, however, it’s a process with a steep learning curve and many moving parts, from figuring out your home-shopping budget to satisfying your final mortgage contingencies. There can be minor hiccups as well as major missteps along the way.
That’s where this article comes in. It will educate you about the six most common first-time homebuyer mistakes and help you avoid them, including:
• Not knowing how much house you can afford
• Not shopping around for the best mortgage rate
• Waiving an inspection because you’ve found your dream house.
First-Time Homebuyer Mistakes to Avoid
You’ve new to this homebuying business, so it’s worthwhile to educate yourself a bit about a few of the key moves to make the process go smoothly. Here, we’ll highlight the steps required for first-time homebuyers and help you avoid some common mistakes when buying a house.
1. Not Getting Your Mortgage Paperwork Moving
Before you start browsing online listings or get your heart set on a certain neighborhood, it might be a good idea to contact a lender (or, better yet, lenders) to show sellers that you are loan-worthy. If you don’t get your mortgage pre-qualification or even a pre-approval started, you’re unlikely to impress sellers as a serious bidder worth their consideration. You might just look like a person who enjoys poking around open houses for design ideas.
Nip that in the bud as follows:
• Pre-qualification: You’ll provide basic information about your debt, income, assets, etc., and they will run a credit check and can give you an idea of how much you can borrow.
• They will also share information on different types of loans — such as fixed-rate vs. variable-rate and 30-year vs. 15-year term — so you can see what best suits your financial situation and goals.
Remember, though: Mortgage pre-qualification isn’t a commitment for the lender or buyer — it’s just a first step. If you appear to meet a lender’s standards, you could move on to the pre-approval stage.
• Pre-approval: This involves submitting additional income and asset documentation for a more in-depth review of your finances.
• Once the lender approves these aspects of your loan application, you’ll receive a conditional commitment for a designated loan amount — called a pre-approval letter — and have a better idea of what your loan terms will be.
• Mortgage pre-approval can help demonstrate to sellers that you’ve completed the first step in getting a mortgage because your credit, income, and assets have already been reviewed by an underwriter. This can smooth the bidding process and could give you an edge over others in a competitive situation with multiple offers.
2. Not Checking Out First-Time Homebuyer Programs
It’s wise to shop around for a few different mortgage quotes, but it can be a rookie mistake to overlook some great, government-sponsored programs that make homebuying more affordable. These include:
• insurance (PMI), along with lower closing costs and a low interest rate.
• FHA Loans : These mortgages are designed for those with low to moderate incomes. They typically offer low down-payment requirements, low interest rates, and the ability to get approval even if you have a fair credit score.
• USDA Loans : These provide affordable mortgages to those with a lower income who are planning on buying a home in a qualifying rural area.
• VA Loans : These mortgages help those on active military duty, veterans, and eligible surviving spouses become homeowners. If you can check one of those boxes, you may be eligible for a home loan with no down payment and no private mortgage.
3. Not Being Realistic About What You Can Afford
Once you know more about your mortgage pre-qualification, you can avoid the homebuying mistake of not knowing your home buying budget. The lender you choose will tell you the maximum amount you’re approved to borrow for a home, but you don’t have to use every penny of that money.
It’s important to keep other factors in mind as you determine the top price you’ll pay for your first home. If you don’t have your pricing guardrails in place, you could wind up overbidding and winding up with a too tight budget. Here, some ways set your sights realistically:
• Ask yourself if your projected mortgage payment will fit comfortably into your monthly budget. You may have to make some tradeoffs — less travel, shopping, or dining out — if your new payment is higher than your current rent or loan payment, which you can figure out with a mortgage calculator.
• Keep in mind that your mortgage probably isn’t the only new expense you’ll have to cover. If you’re buying a bigger place than your current rental, you will likely pay more for utilities. If the home has a lawn or pool, you might have to maintain them or pay someone else to do it. Or you may have a homeowner association (HOA) fee. Add those costs, gleaned from online sources and/or open houses, to your projected monthly budget (you can make a budget in Excel, use paper and pencil, or work with an app).
• You’ll also have to account for the cost of homeowner’s insurance and paying your property taxes. You can get some idea of what those costs will be by searching online. There are insurance calculators, and most home listings give you the annual property taxes.
By doing the math, you’ll make sure you are ready to keep up with the monthly flow of expenses without dipping into savings or taking on credit card debt.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
4. Digging Too Deep for a Down Payment
In their eagerness to become homeowners, many first-time buyers make the mistake of going overboard and directing every bit of money they have to the purchase.
If you have to drain your emergency savings to manage the down payment on a home, you might want to dial down the amount or wait and save up a bit more. Consider what could happen if the home needs a costly repair or, worse, if you or someone in your family suddenly has an expensive medical bill. That’s a good example of when to use an emergency fund.
The same thing holds for taking money from your retirement savings. The IRS allows first-time homebuyers (which the IRS defines as not owning a primary residence in the past two years) to withdraw money from an IRA penalty-free . But this is capped at $10,000, and you’ll still pay federal and state income taxes on the money — and lose out on the growth you’d possibly have if you left those funds alone.
If you have a 401(k), you could take a loan against those funds, but again, there are consequences. There may be a provision in your plan that prohibits you from making additional contributions until the loan balance is repaid, so you’ll miss out on any growth, and you may be required to pay back the loan immediately if you quit or lose your job. If that happens, the money you borrowed will become fully taxable and may be subject to a 10% early withdrawal penalty.
There are benefits to putting 20% down on a home: You’ll avoid paying private mortgage insurance (PMI) and your monthly payments will be lower. But 20% isn’t required. For example, the minimum down payment required for a conventional loan is 3%, and for an FHA loan, it’s 3.5%. According to the National Association of Realtors, first-time buyers typically put down 7% of a home’s price in 2021.
With all the other costs you could be looking at as you move into a home — closing costs, utility deposits, moving expenses, decorating, and more — your down payment amount is something to consider if you want to avoid getting in over your head.
5. Passing on a Full Inspection
It may be tempting to waive the home inspection when you’re trying to buy the home of your dreams — especially if you have some stiff competition to be the winning bidder for an in-demand property.
Sorry to say, this is a risky strategy. A home inspection might reveal critical information about the condition of a home and its systems, from electrical problems to hidden mold; from a failing septic system to a leaky roof. What you learn in an inspection could reveal that your dream home is actually a money pit.
What’s more, your inspection report might serve as a useful negotiating tool: You could use it to ask for repairs or to work out a better price from the seller. And if you really aren’t happy with the inspection results, you may be able to use it to cancel the offer to buy.
💡 Recommended: 7 Important Factors That Affect Property Value
6. Letting Your Emotions Get The Better of You
Homebuying can be a roller coaster, so it’s important to prepare yourself psychologically as well as financially. If you’ve ever talked to someone buying a house, you know there are potential pitfalls all through the purchasing process.
You might fall in love with the perfect house and find it’s way over your budget. You might get annoyed with the sellers or their Realtor, especially during the negotiation process. You might disagree with your spouse or a co-buyer about priorities.
All of these scenarios can cause a person to behave emotionally. It might make you want to walk away from a great deal. It might lead you to barrel ahead with a purchase, even when warning lights are flashing.
How to avoid such mistakes when buying a house? By recognizing that this will be a challenging and at times stressful process (especially because you are new to it), you can proceed more calmly. Find tools that help you move ahead with patience and a sense of calm, best as you can. With your eye on the prize — namely, your first home — you’ll get there.
💡 Recommended: 31 Ways to Save for a Home
The Takeaway
Buying a home for the first time is an exciting moment, but one that takes some time and care to make sure you avoid rookie mistakes. You’ll want to do due diligence, not skip steps, or get carried away by emotion.
When you’re ready to line up your financing, the loan terms you get could be nearly as significant as your home’s location in terms of long-term satisfaction.
When shopping for a mortgage, you may want to compare different interest rates, the length of the loan, and other factors that make one lender a better fit than another.
With a SoFi mortgage loan, for example, the pre-qualification process is super simple, and our loans have competitive rates. What’s more, qualifying first-time homebuyers can put down as little as 3%, and work with our Mortgage Loan Officers who can coach you through the required steps.
If you’re thinking about buying a home, see what a SoFi mortgage could do for you.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Sanford firmly believes that AI is not just a buzzword but a game changer that holds the key to unlocking extraordinary opportunities within the real estate sphere.
“AI is not about replacing real estate professionals; it’s about enhancing their abilities and the overall customer journey,” asserts Sanford, emphasizing his commitment to leveraging AI as a collaborative tool rather than a divisive force in the industry. Unlike those hesitant to embrace change, Sanford recognizes the immense potential AI brings to the table and views it as an indispensable asset that can elevate agents’ proficiency and effectiveness.
“I am an entrepreneur at heart, which means I think like a true entrepreneur, it’s less about P&L. I’m not building a business to fund a lifestyle. Most entrepreneurs would rather be broke than have a mediocre business that’s technically profitable,” he says. It’s this mindset, what he calls “the mindset of a person that builds a start up” that encourages him to “radical things [such as investing in AI],” he says. “You realize that you can crash and burn a number of times while building something that finally gets traction.”
Investing around the edges
However, Sanford has no plans to crash and burn with the AI-driven solutions tailored explicitly to cater to the ever-changing demands of the modern real estate market. “We’re starting to make investments into various companies on the edges. We want to create opportunities for people to merge their new ideas inside the “city” of eXp that would benefit agents, brokers and staff.” That includes eXp Ventures, to foster innovation. “How do we take from companies that have done well and innovate in a modern way?”
By harnessing the power of machine-learning algorithms, eXp Realty’s agents can now gain unprecedented insights into market trends, accurately predict property values, and efficiently match buyers with their dream homes.
“We’ve got a number of instances around the company, and we’re going to use other instances of either generative AI or image AI. We are already doing some image AI,” says Sanford. “We’re already working AI into our search solutions, like Zoocasa and others. So, you’ll be able to use natural language search when searching for property. So, the stuff that Zillow’s doing, we’re incorporating,” he says.
Disruption of the agent
“Real estate agents are going to get seriously disrupted by AI,” says Sanford, but not in the value of the real estate agent, but more in the way things are done. “Think about the [possibility] that lead follow up and nurturing campaigns will be managed by AI in the future. Look at platforms like Synthesia, [an AI video generator]. At eXp, we have a partnership with Blended Sense, [a content creation platform], so agents can do a video using Blended Sense [then upload] that into Synthesia,” says Sanford.
The agent can then add in content about their local community that’s generated by ChatGPT-4 and pump it into Synthesia. “They can self-narrate with their voice using an AI-generated version of themselves with AI-generated content. And in some cases, the consumer won’t even know it wasn’t the agent actually providing that information,” he says.
Sanford envisions a future where AI-driven chatbots effortlessly handle routine inquiries, freeing up valuable time for agents to focus on building deeper connections with clients and offering tailored guidance throughout the real estate journey. “The true essence of real estate lies in nurturing meaningful relationships,” Sanford says, “and AI should serve as a seamless enabler rather than an intrusive barrier in achieving that.”
Essential to business
While some may view AI as an accessory, Sanford passionately believes that integrating AI is essential in fortifying the industry’s foundation for generations to come. He envisions a day when AI algorithms will go beyond predictive analytics and assist agents in curating personalized property recommendations that align perfectly with their clients’ preferences and lifestyles.
Moreover, Sanford is not one to rest on his laurels; he relentlessly invests in research and development to push the boundaries of what AI can accomplish for the real estate world. Sanford’s commitment to staying ahead of the technological curve is driven by his belief that embracing AI wholeheartedly is not an option but a necessity to remain relevant in an ever-accelerating digital era.
When it comes to integrating AI into your brokerage, Sanford sums it up this way: “The reality is that it doesn’t matter what the controversy is. It’s literally those who don’t use AI will work for people who use AI.”
In our latest real estate tech entrepreneur interview, we’re speaking with Ivan Levchenko from iGMS.
Who are you and what do you do?
I’m Ivan Levchenko, and I’m a co-founder and the CEO of iGMS, a cloud-based vacation rental management software for hosts and property management companies. I’m an entrepreneur by nature and have built business projects from scratch in the B2B and B2C sectors, growing companies from 5 to 150 people. I’m also a host myself and, so, many of my expertise lies in the short-term rental market.
What problem does your product/service solve?
As a host, I’ve found that there are many time-consuming, routine tasks relating to the vacation rental industry that can actually be automated to help fellow hosts and property management companies work more efficiently. iGMS vacation rental software helps hosts to handle these day-to-day business activities and consequently scale their business.
Our major features include automated messaging, guest reviews, cleaning and team management, and financial reporting. Our tools take the headache out of listing on multiple platforms as hosts can manage all of their Airbnb, HomeAway & Vrbo accounts via one single interface.
What are you most excited about right now?
I’m most excited about developing our vacation rental software further and equipping it with the best functionality. Our roadmap for 2020 includes integration with Booking.com and a direct booking engine. We’re also going to pay attention to developing our API so that more partners can integrate.
The industry has grown tremendously and that really inspires and motivates me. I want to help our clients to enjoy the same growth so that they too can take their business to the next level. Some of our clients have tripled their number of properties in a year. That’s so exciting and we’re proud of their results!
What’s next for you?
In short, our vacation rental software wants to become the one-stop-shop with more integrations to cover the full scope of activities and automation for hosts. Our dedicated R&D team is working on developing AI and machine-learning solutions (we don’t want to do just scripts like most companies, but real AI). This will allow property managers to automate business processes to the max, as well as reduce the risks associated with human error.
The world of technology is changing every day. If you don’t embrace the changes, your business is doomed. There are hundreds of old-school PMS solutions that are already struggling as they don’t meet the new customer requirements. We certainly plan to stay ahead of the curve and will continue to do our best to support our clients with their arising needs.
What’s a cause you’re passionate about and why?
First thing, I’m passionate about my children and family. My life changed dramatically when my children were born and I really try to spend as much time as possible with my family. I like to take them out into the countryside and on hiking trips. I spend all evenings now only in the circle of my loved ones.
I’m also passionate about nature and our planet. Last summer, after a cruise to Alaska, I was deeply shocked at what Alaska’s largest glacier turned into: from a huge snow-white mountain to a small black hillock. It’s horrifying how many whales died from a lack of plankton and by how much the salmon were reduced. All of this happened in just 15 years!
I’m also concerned about plastic pollution. In our family, we not only refuse to use any plastic bags, but also don’t buy any plastic household utensils, including furniture that contain plastic materials.
We all choose and vote for what we want to support. If more people will buy eco-friendly and organic products, fewer harmful products will get produced that will just destroy our planet. Ultimately, for economic reasons, manufacturers will have to adapt to the new demand and change their technologies to what’s now relevant to the market.
Thanks to Ivan for sharing his story. If you’d like to connect, find him on LinkedIn here.
We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).