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April 18th, 2022 – Are we at the Peak of the Market? Monday Morning Update

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Good morning. It’s Mike Lynch with AmeriFirst financial and it’s time for your Monday morning mortgage update for the week of April the 18th, 2022. So it’s tax day to day. IRS didn’t require us to turn taxes on, on Friday. Cause it was good Friday, Easter weekend. So hopefully y’all spent the week and not doing your tax has been enjoying time with family on Easter.

I cooked my first or smoked my first Easter ham. Can’t believe it’s taken this long for me to do it turned out. Fantastic. So we’re going to talk about what happened last week and what’s going to happen this week. Last week, the mortgage backed securities. Was down 58 basis points. So we know that when the market’s down on the bond side people put their money in one of two places, the risky stock market or the safer bond market when money flows into that bond market, which is where mortgage rates are determined, then rates go down when money flows out.

Rates go up. So there was a 58 basis points sell off, which means money flowed out of the bond market and mortgage rates went up now, Hey, the good news is it wasn’t as bad as the week before where there was over a hundred basis points off, but you know, I’m a broken record here. We’re just getting sell off after sell off, after sell off and rates are going up and up and up.

And it’s really important that we responded to our clients when they, and be proactive when we’re meeting with them or our buyers and our sellers. To put the elephant in the room. Everybody’s talking about it. And the more information you have on why this is happening, what the future’s going to look like. The more trust that that buyer and seller has in you, because we have to be the interpreter of the information. We’re not the information. They’re getting this from every news source, every website. Every blog, every opinion on Tik, TOK, whatever it is. And so we have to really take the information we know they’re getting and put it into perspective. So let’s try to do that a little bit. What happened last week is those rates went up and what’s going to happen this week. Three things. I always try to focus on those three. The fed federal reserve. They’re going to be talking this week and we want to focus on some important information from that reports, economic reports that could, could possibly move the market. And then are we at a market? Our home prices at the top. Are they going to slide? So let’s talk about the fed first. The federal reserve raises as lower as that prime lending rate or the fed rate whenever they need it. They think they need to do it and they manage fiscal policy, obviously in this country.

And so we know, three weeks ago, the fed raised the fed fund rate a quarter percent. They haven’t raised it in two years. And they raised it because they’ve got to fight inflation. Inflation is up. We know that last week inflation, our numbers were record highs again which is bad for mortgage rates. And so if the fed raises that fund which they have to do a, that slows down spending it slows the economy down and that’s going to curb inflation. And so the fed basically said last week, they’re probably going to raise this six more times. We have six meetings the rest of the year, and they’re going to raise it at all six meetings.

They raised it a quarter percent, three weeks ago. So are they going to raise it a half, a point and half point in the coming meetings? There’s some expectations that they’re going to raise it up to three and a half percent members spinners. Raise it up to three and a half percent. By the end of the year, that’s going to have a big impact on spending because remember that fed fund rate that we all hear about in the news, it doesn’t affect mortgage rates. It affects home equity line rates. It affects auto loan rates, credit card rates, but it also affects the interest rates that businesses paid to borrow money and businesses need money to operate and to grow. It’s costing them more to borrow money. That’s going to slow growth. That’s going to slow production there, cause they’re going to pass that savings on to everybody else. Or that cost, if you will, onto everybody else and people are going to buy less, they’re going to spend less. It’s just, what’s going to happen. The fed, accelerating this increase in the fed rate is going to drive us into a recession. It’s coming. We’ve already seen signs that it’s coming. And so they’re going to talk this week about really word is that.

Where’s the speculation on how aggressive they’re going to get in raising this rate. The second thing the fed is probably going to talk about the fed members and in interviews and in, in discussions they have is the balance sheet. So we know that the fed stopped putting money into the bond market.

In March, and that means a lot less money’s flowing into the bond market and that drove rates up. And so now they’re talking about putting less money in the back end of the market called re-investing and this basically tightening what we call tightening their balance sheet. And so we’re going to get some indications on how aggressive they’re going to get on that as well. And so they stopped putting money on the front end. Now, if they stop putting money on the back. We’re going to see rates come up, go up again. And obviously this is going to have a big impact on our buyers and sellers and what they do and what they decide not to do. So we’ll pay a lot of attention to this. As this backend tightening can happen in may and June. What are they going to do with the next fed meeting? How much are they going to raise those rates? A lot of things might come out this week. Second thing is economic reports. A lot of housing data this week, nothing really is going to affect the market.

We’ve got housing starts permits existing home sales, Thursday weakness, jobless claims. A lot of stuff that probably won’t move the market that much. And then market peak, you know, I get a lot of questions from buyers, sellers, agents. Are we at the peak of the market? Well, let’s be honest. We have a little bit of PTSD from the last housing crisis, right. We think if prices are going to go up this much and they’ve gone up, as we know significantly, w we kind of fall off a cliff like we did last time. And I think we can probably all agree if you really look at the details of the difference between the. Back in 2008, nine and 10. And now there’s a lot of differences in the market in supply and demand and the demographics in the type of loans people have and the equity people have in their homes, a lot of different things. So we’re not going to fall off a cliff. Nobody expects us to, but rates are up and that. Going to have and is having an impact on what people are going to pay and, and on homes. And is it going to change the sales price? And are we going to see a slowdown? Well, we already are seeing one. I mean mortgage applications are down 20 to 30% since the beginning of the year.

And a lot of that has to do is re refinance business. There definitely is a reduction of mortgage applications. And a lot of big banks are laying off people in the mortgage industry, lot of layoffs because they expect to slow down on the market. But here’s another statistic of all the homes that have been sold at this year.

70% of them are still over bid, over asking price people. Paying more than the list price to buy the home. So that shows you there is demand out there. And you’ve talked to a lot of people. They’re not seeing a real big fall off on demand, even though rates are over 5% now in a 30 year fixed Freddie Mac came out in the report last week. We need 3.8 million units under built. We are underbuilt by 3.8 million homes nationwide. Now, if you believe that number 3.8 is just to meet the current demand. It doesn’t put into consideration what we need to do to get back to a normal market. And that’s over 5 million homes, and this is just not going to cure itself overnight.

There’s some estimates that we need to be in a 10 year normal building pattern just to get back to normal. Inventory levels. So yes, demand has slowed. Significant has slowed, but it’s not significant yet. If you talk to people we really haven’t seen a big demand, slow down. So time will tell and and some information will come out this week. May give us some insight on what’s going to happen in the future. So light economic week, as far as reports, but still a lot of volatility. We’re in a locking position. We’re really not changing that, not playing the market. If you know somebody that needs some advice and locking the loan, please give me a call.

If you have any comments, I’d love to hear them. If you know somebody that could benefit from this video, please forward it to them. Have a fantastic productive week and we’ll talk to you soon. Bye-bye.

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