04/27/2022
💥🚨🛑 Interest rates in the 2's and 3's are FAKE!
Pardon the lengthy post, but I feel like where are a lot of people "waiting" for those fake rates to return. Let's dig really deep into why these rates really are as fake as a 4 dollar bill with Elon Musk's face on it.
"Wait, I have a fixed 2.625% on my home, how are they fake?" you may ask. Well let me explain.
Mortgage rates are currently and have been heavily manipulated since 2009 by the Fed (Federal Reserve). The insanely low rates we saw in 2020 and 2021 were just that, a manipulated low rate to boost the economic position of the United States.
Starting in 2009, to end the recession caused by the housing bubble, the Fed became the largest purchaser of MBS (mortgage backed securities). Between February 2009 and July 2010 the Fed purchased more than $1,000,000,000,000 (yes that is a trillion) in MBS to stabilize the housing market. This purchasing (and some selling) has ebbed and flowed ever since on a much smaller scale.
When we hit recession at the beginning of the pandemic the Federal Reserve increased their buying of MBS on a massive scale. This is known as QE (quantitative-easing), and the last 2 years have been the largest QE we have seen in history.
On March 11th 2020, the Fed was holding $1.37 trillion in mortgage backed securities, today they hold more than $2.73 trillion worth. This is why rates dropped to the unrealistic lows we saw, they were artificially pushed low to boost the housing market as the housing market makes up 15-18% of the total GDP (gross domestic product) of the United States. This boom in housing essentially brought an end to the recession we were in, but in all reality it didn't end it. What it actually did was kick the can down the road for the next recession.
The rise in interest rates we have seen in 2022 has been the fastest increase in rates in 28 years, this increase is due to the Fed stopping their purchase of MBS, the Fed is set to begin QT (quantitative-tightening) where they will begin to do the opposite and sell MBS rather than purchase. Some of this may already be baked into (already priced into the market because they know it will happen) the rates we are seeing, but don't be surprised if we see rates tick higher as this period of QT begins.
In summary, we cannot be stuck on the fact we missed the market lows because those lows were artificially created to end a recession. Although during a coming recession the Fed may again purchase MBS and we could see crazy low rates again, lets not forget that a healthy housing market has rates in the 4.5-5% range and that is where we predict things to settle down once the current volatility subsides.
Thanks to a legend in the industry for the EPIC knowledge!
