Navigating the Wonderland of Real Estate
Poor Alice. Just when she thought she understood the rules of the strange world that she suddenly inhabited, the underlying logic of Wonderland would shift. Whether she misjudged the effects of eating a particular piece of cake or got lost in the circular logic of the Mad Tea Party, Alice was constantly at a loss to make sense of her surroundings. Likewise, my colleagues and our clients have found that we, too, have fallen through a looking glass, struggling to understand the unpredictable nature of today’s real estate market.
The Roller Coaster of COVID-19 and Market Reactions
It all started a few months after COVID hit. Real estate sales had imploded; buyers and sellers vanished overnight, and I was genuinely afraid I’d lose my business and go bankrupt. Just as suddenly as it had collapsed, the market flipped. Buyers flooded in, and soon, bidding wars were the norm. New financial products and strategies were deployed to ensure that our clients had an opportunity to prevail in this new game of real estate. What was this strange world we’d stumbled into, one that felt both thrilling and absurd to navigate?
Our strategies evolved quickly, but then the spring of 2022 brought another unexpected turn. The Federal Reserve began raising interest rates to tackle inflation, challenging brokers to rethink their approach once more. We did so only to find that, eighteen months later, in December of 2023, Jerome Powell (the Caterpillar in our metaphoric comparison—always speaking in nuanced riddles, intent on obfuscation when necessary) hinted that the war on inflation was nearing its end. As a result, pundits and talking heads were certain that mortgage rates would soon begin to fall. Well, it was September of this year before the Federal Reserve felt that enough progress had been made in the war on inflation, prompting them to cut rates by 50 basis points. Mortgage rates dropped to 6.11%, and it was obvious—an absolute certainty—that the cost of financing the purchase of a home would continue to fall. Surprisingly, in this Lewis Carroll-inspired financial landscape, just the opposite happened.
Political Shifts and Market Uncertainty
Enter Donald Trump, the Queen of Hearts in our allegory—a bold, commanding figure with a penchant for grand proclamations and swift, often controversial decisions. As his victory over Kamala Harris grew more likely, bond markets rose sharply. Because mortgages often mirror the bond market, home loans climbed as well, reaching 7.13%—their highest point since early summer. Why the surge? Investors were increasingly anxious that a Trump presidency would bring policies seen as inflationary: renewed tax cuts for the wealthy, global tariffs, and significant spending increases. More importantly, where were rates headed? What happened next didn’t provide any clarity.
Two days after Donald Trump won his re-election bid to reclaim the office he once held, Jerome Powell held a previously scheduled press conference announcing a reduction in the federal funds rate. Traditionally, any press conference presided over by the Chair of the Federal Reserve is a staid, academic recitation of facts and figures. And, well, more figures. However, hanging in the air at this particular scrum of financial reporters was something both unusual and, potentially, dramatic.
When Trump first occupied the Oval Office, he famously denounced Jerome Powell as an “enemy” for not cutting interest rates aggressively enough. Now, as he prepares to return to the White House, speculation swirls about his desire to circumvent the charter of the Federal Reserve and influence Fed policy or, potentially, simply replace Powell as Chair (whose tenure expires in March 2026). When a reporter asked if Trump might try to sack him, JayPo tersely replied, “Not permitted under the law.” When asked if he would resign if asked to do so, he uttered his one-word response: “No.”
The Bond Vigilantes and the Future
So who might ultimately prevail? Perhaps another curious character—the bond vigilante. Like the Card Guards of our allegory, these market forces enforce their own form of order through the buying and selling of government bonds. When they fear policies might spark inflation or increase government debt, they sell their bonds, pushing yields higher. In short, they exert their influence when they sense that authorities aren’t accomplishing the job they want to see accomplished. Since mortgage rates typically mirror these bond yields, their actions ripple through the housing market. Only time will tell whether it’s the president, the chair of the Federal Reserve, or the bond vigilantes themselves who will exert the most influence on interest rates, and more broadly, the economy as a whole. All that is certain, is that it will be fascinating!
Despite these uncertainties, I remain optimistic about real estate’s potential in the coming year. Pent-up demand and the essential needs of homebuyers will continue to drive activity. This journey may require extra resilience and some financial sacrifice, but I believe progress is on the horizon. After all, the Cheshire Cat reminds us that in a world as unpredictable as Wonderland, sometimes you have to run as fast as you can just to stay in place—and even faster if you want to get anywhere at all.