This is an interesting thought, and it will require a little bit of speculation too.

But what I'll spend most of my time on is the hard numbers of what refinancing would look like, the difference in monthly payment going from 6% to 2.625% and how that would affect your budget and top purchase price.

What it would mean for our economy? (severe labor market crash)

If we got back to 2020 levels, I would be worried for us.

This is the speculation part on my end, but I think it would mean that our labor market would be suffering to an extreme.

Could be a wave of job losses similar to the pandemic, but with AI being the new culprit (recency bias)

Commercial real estate bubble popping

I could see a commercial real estate bubble popping here pretty soon.

5 year terms are coming up. Low commercial rates will be due for renewal at much higher rates. Vacancies are still high in the office sector.

I don't think they'll be able to handle higher financing charges.

But that writing has been on the wall for some time. Several banks and investment companies will be hit hard, but I don't think it would shock the economy hard enough to cause rates to drop to 2020 levels.

Political pressure

Once Jerome Powell leaves the position, it will be interesting to see who takes up the spot.

Likely Waller or Hassett

Hassett was an economic advisor for Trump.

His first day on voting for a rate decision, he dissented, stating the rate cut should be more than 0.25. He's a candidate to replace Jerome Powell. And I believe he would come in and drop rates aggressively at the beginning.

Waller would be more independent, but is also a candidate for his views on predictive reasoning, rather than data-dependency.

Waller might see a reason to drop rates, but I believe he would drop rates for reasons outside of political pressure.

Combination of Hassett and commercial bubble popping

Even if we had Hassett and a commercial bubble popping, I doubt we would see rates drop to 2.625% but I believe we'd see rates almost a full percent lower than what we have today.

Honestly, it would take something terrible to be back at 2020 levels.

and I don't think we want to see what that looks like.

Rates. More buying power. More competition. Supply and demand.

I'm almost done speculating

If we hypothetically got back to a 2.625% we would see supply open up. Sellers would be more likely to leave.

But we'd also see demand for those homes increase. I believe demand would be higher than the supply could feed.

high demand + limited supply = increased prices.

This would put upward pressure on home prices.

2020-2021 The U.S. average saw home prices increase by 15%

2021-2022 the U.S average increased by 12%

Over two years the market rose 27% and in some areas it went as high as 40%

Purchasing

Homebuyers looking for homes would experience that high competition and would experience serious home shopping fatigue.

You likely won't get the first home you make an offer on.

That home will probably be swarmed with 5+ offers the first day it lists on the market.

This aspect really hurts buyers.

The way around this crazy frenzy would be to get in line for a new home build.

You'd be waiting for several months for the home to finish construction.

The good part of this is when you get in line, it means you're under contract, and don't have to worry about competing offers.

The bad part is:

Builders don't lock in prices anymore.

Back in the day you could get in line and your purchase price was fixed.

That's not the case as much today.

If costs increase during construction, your purchase price could increase.

Construction quality worsens

Builders will be in a rush to try to keep up with demand. If they can keep up with demand, they'll make a lot of money, but this in turn will cause new builds to be rushed, and of poorer quality.

The effect on your payment

I'll just work with today's median home price, and increase it by 25% and apply this hypothetical rate of 2.625%.

Today's numbers

Today's median: $431,331

Today's rate: 6.3%

Today's payment (5% down $21,566, estimates on property taxes, HOI and .25 mortgage insurance factor): $3,087

hypothetical numbers

Hypothetical median: $539,163

Hypothetical rate: 2.625%

Hypothetical payment (5% down $26,958 and estimates on escrow): $2,829

Refinancing

Let's do the same thing but without increasing the purchase price. Because this person is already a homeowner and the loan amount would not change.

$409,764 loan amount

6.3% rate

Payment: $3,087 ($2,536 Principal and interest)

Total interest: $503,546

Now let's look at the new rate

2.625% the principal and interest payment drops from $2,531 to $1,645 ... almost $900 per month

The total interest drops from $503,313 to $187,730 ... $315k less

If you kept paying the same P/I payment and didn't pocket the savings, you'd be done in 17 years instead of 30.

Year	6.30%	2.625%
1	$405,007	$389,846
2	$399,942	$369,398
3	$394,549	$348,408
4	$388,805	$326,860
5	$382,690	$304,739
6	$376,177	$282,030
7	$369,242	$258,719
8	$361,858	$234,787
9	$353,994	$210,220
10	$345,621	$185,001
11	$336,705	$159,111
12	$327,210	$132,534
13	$317,100	$105,250
14	$306,334	$77,241
15	$294,870	$48,489
16	$282,662	$18,972
17	$269,663	$0
18	$255,820	$0
19	$241,080	$0
20	$225,384	$0
21	$208,670	$0
22	$190,872	$0
23	$171,920	$0
24	$151,739	$0
25	$130,249	$0
26	$107,366	$0
27	$82,998	$0
28	$57,051	$0
29	$29,420	$0
30	$0	$0

reminder

Refinancing into that new payment sounds amazing. But I just want to drop a reminder of the terrible economy the country would be in to bring on rates like that.

In 2020 I had this sense of dread that my parents would go bankrupt, and that my wife's mother would have to move into our house.

It luckily didn't happen, but I don't want another scary economy.