06/17/2022
Great insight and perspectives on the Fed Announcement and Mortgage Rates from my Primary Lender, Dan Peck at Caliber Home Loans...
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Hello Everyone!
I thought I would reach out to you again this week now that the FED has met as it pertain to mortgage rates. Yesterday the FED raised the FED FUNDS RATE (FFR) .75% or 75 BPS. This is the largest increase in 28 years (last time was 1994). It is often thought that the FFR controls mortgage rates and that is not the case. Earlier this week when I reached out it was because of the major shift we saw in mortgage rates after the inflation numbers were released late last week.
Inflation is the enemy of mortgage rates, not the FFR. In the current environment a higher FFR should put pressure on reducing inflation over time. Once under control and moving lower will give us better interest rates on mortgages. The market shifted better yesterday for mortgage bonds after the FED announcement and comments because they like the aggressiveness of the higher FFR and how is should help calm things down quicker. Thus rates did improve a little yesterday and that seems to still be holding today.
How long is it going to be this way? Probably another 6-12 months. So the good news is that this hopefully we be a very short lived season we are in. Due to how year over year inflation is calculated we are probably going to see inflation rise until Sept/Oct of this year. So the next couple of months expect the continued volatility.
The signs are already coming through economically that show that things are slowing down which for the inflation factor is a good thing and what the FED wants. You can see on the attached inflation chart that this is the first time the FED has been this far behind of inflation in how it correlates to the FFR. That is why the bigger FFR moves are seen as a positive.
What happens after 6-12 months from now? Attached is a very widely accepted FHLMC housing shortage report that was issued in FEB of 2020. As many of you remember back in 2008-2012 during the financial crisis America quit building homes and we fell dramatically behind on housing and currently today are still 3.5-4.0 million homes behind nationally where we need to be when they projected forward “household formation”.
Higher rates are a buyers new ally! Yes, higher rates are good for buyers because of the first time in a long time buyers can potentially use contingencies and negotiate now which is something they haven’t been able to do for a long time. There is a huge buyer pool out there that couldn’t compete these past couple of years with demand and they now can and guess what, higher rates really aren’t bothering them. They just want a home.
In the end, this little blip we are in will be short and housing demand is still going to be very strong and the buyers that buy today will be happy in a few years that they did because more than likely they will be able to refinance out of the higher rate loan they got today and they will owe a lot less on their home because they got it for a better price.
