Lower Rates Will Crash Home Prices - Jared Dillian | 10X Money Talks
TL;DR
Macro trader Jared Dillian predicts mortgage rates will fall to 5.5% by next year, but argues this will paradoxically cause home prices to drop as millions of 'locked-in' homeowners with 2-3% rates finally list their properties, flooding the market with supply.
🏠 The Housing Supply Paradox 3 insights
Lower rates will crash prices, not spike them
Unlike typical cycles where rate cuts spur demand, Dillian argues that dropping rates to 5.5% will encourage millions of homeowners with 2-3% mortgages to list simultaneously, flooding the market with supply and depressing prices.
The lock-in effect traps 60% of borrowers
Approximately 60% of mortgage holders are trapped in loans at 4% or below, unable to move due to affordability constraints at current 6.5%+ rates.
Builder margins reveal consumer weakness
Homebuilders like LAR are offering incentives up to 14% to move inventory, signaling compressed margins and weak consumer demand despite recent new home sales spikes.
📉 Interest Rate & Economic Forecasts 3 insights
Aggressive cuts coming through 2026
Dillian predicts mortgage rates falling to 5.5%, Fed funds dropping to 2.5-3% by Q1 2026, and 10-year yields reaching 3.5%, with potential cuts continuing into 2026.
Labor market deterioration accelerating
Job growth is slowing significantly with the latest payroll report at just 22,000 jobs and unemployment rising to 4.3%, potentially driven by AI disruption and deportations.
A 'muddle-through' economy
Despite political claims of strength, the economy is experiencing average growth with squeezed consumers, characterized as 'muddling through' rather than collapsing or booming.
🏛️ Political Pressure on the Fed 2 insights
Midterm-motivated monetary policy
Dillian suggests Trump's aggressive pressure on the Fed aims to prevent recession before November midterms, with recent rate drops partially attributable to this political influence.
Fed board facing overhaul
With Powell's term ending in May and replacements already underway for Adriana Kugler and potentially Lisa Cook, Trump could install 3-4 governors within 6-12 months, creating a voting bloc for lower rates.
💰 Personal Finance Philosophy 3 insights
Reject financial extremes
Dillian advocates a middle-of-the-road approach between FIRE movement frugality and high-risk speculation, such as splitting extra cash between debt paydown and market investing.
Retirement security is individual
Using his mother turning $400k into $1.2M over 14 years as an example, Dillian notes retirement needs vary widely—some need $1 million, others need $3-5 million for stress-free living.
Extreme wealth requires leverage
Achieving billionaire status demands 40% compounding returns impossible in public markets, requiring real estate leverage and tax advantages rather than traditional stock investing.
Bottom Line
If mortgage rates drop to 5.5%, expect a flood of housing supply as locked-in homeowners finally list, creating a buyer's market with lower prices rather than the bidding wars seen in typical rate-cut cycles.
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