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How High Will It Go?

6 · 13 · 22

Good morning. It’s Mike Lynch with Ameri first financial and it’s time for your Monday morning mortgage update for the week of June the 13th. I’ll hope everybody had a fantastic weekend. Great weather time to get outside a lot of events happening this time of year. I went to a friend’s wedding, went to a, a local event and spent time with FA family and.

So what happened last week and what’s happening this week in the market last week, 127 basis points sell off on the bond market. Bonds went down, mortgage rates. The week before that a 57 basis point sell off on the bond market. So just in the last two weeks, we’ve had just shy of a 200 basis point sell off on the bond market and that’s caused rates to go up.

Last week we had consumer price index CPI, key measure of inflation record highs, 40 year high, 8.6%. And that really caused the rates to do what they did last. When inflation is high, it’s bad for mortgage rates. It’s cryp Aite for mortgage rates. And think about this. If you have a four a million dollar bond and you’re getting a 4% yield or rate on that bond and inflation is 1%, you have a 3% rate of return.

Now, if that yield, if that inflation goes to four, five, 6% then the feds and everybody will raise the bond prices or to raise the yield maybe to five, six, 7% to still keep that, that, that return on those bonds. So that’s why an increase in inflation is so bad for rates. The other things we had were consumer sentiment was way, way down and.

You and I, consumers don’t feel good about the economy. That’s not good. So what are we looking at this week? We’re looking at the three things. Always. We’re looking at the fed supply and demand, and then a lot of data out this week. So let’s talk about the fed bid week, big week for the fed this week, they’re having their fed reserve meeting.

The fourth, one of the year, it’ll end on Wednesday, and everybody expects a fed to raise the fed fund. At least a half a point. They did it a half a point at the last meeting. The one before that they did it a quarter point, but there are some people thinking that maybe they should rate it, raise it three quarters of a point or 1% basically, because inflation is so high and so outta control.

And remember, this is the primary way the fed fights inflation is to raise that fed fund rate. It doesn’t affect mortgage rates directly. It affects credit card rates, auto loan rates. Home equity line rates, but it also is the rate that businesses typically are charged when they borrow money for their business.

So now it’s gonna be more expensive for business to get money, and guess what? They pass all the expense down to the consumer. So price are gonna go up. It’s not gonna get any better anytime soon. The other thing that’s happening this week, that a lot of, a lot of people are talking about is Thursday.

The fed will announce their quantitative tightening. Now I’ve talked about. Basically the fed invests in the bond market. Two ways on the front end, where they just buy mortgage back securities and on the back end, when they reinvest, now, they stop buying mortgage back securities, basically in March.

But they’ve also talked about tightening their balance sheet called quantitative tightening. They’re gonna stop reinvesting in the bond market, and that has an impact on our rates. And they’re going to show us if they started that in June, they were supposed to. And so when that report comes out Thursday, it could really have a big impact on rates because if they, if they did what they said they were gonna do and they.

Told us yet, if they stopped reinvesting or slow down that reinvestment, we actually could see rates even go up again on, on Thursday. So we just don’t expect rates to see better, get better inflation when they’re fighting inflation. When that fed raises that fed fund rate long term, that’s actually good for mortgage rates cuz we know we’re gonna bring the rates down, but we just don’t expect this rate increase that we’re gonna see Wednesday to have a positive effect on.

Just because of everything else that’s going on. So what’s the second thing. The second thing is supply and demand. So generally we’re seeing supply increase. There’s more houses on the market than were a couple months ago. There’s fewer showings. We’re starting to see price reductions and.

The buyer fatigue is shifting to payment shock. The buyers simply can’t afford today what they could have afforded two or three months ago or even a month ago. Demand demand is slowing. Again, we’re starting to see a lot of that demand backing off in some of the higher price ranges, fewer, multiple offers, things like that.

And it’s really slowing in some of the Metro areas. A lot of people think are really gonna be hit the hardest if we’re in any kind of a of a real estate bubble, that demand will really slow more in those Metro areas. So historically, keep in mind that even though that supply and demand is showing historically, we’ve actually seen rallies real estate rallies when we’ve seen rates in these 6% range.

And that’s one of the reasons we’re seeing this shift is because rates are up. But nobody remembers rates five years ago. They remember yesterday’s rates. So there’s gonna have to be. Shift in the mindset of the buyer that, Hey, 5%, 6% is not a horrible rate. And it’s up to us in, in our industry to really educate people on that.

And that’s gonna be something that they’re gonna have to absorb and realize that these rates aren’t as bad as they have been historically. The other thing that’s interesting on supply and demand outside of real estate is the, the, the desire to own mortgage backed securities. So as this real, at the, as this economy shift, And few money goes into the riskier stock market.

Typically we see that money parked in the safer bond market, which is good for mortgage rates, but there’s not a demand for mortgage back securities. Right now. It’s a very interesting to statistic that we’re seeing and a trend why, well, nobody wants to own mortgage back securities. If they’re, if they think there’s gonna be real estate bubble and, and the real estate market is going to correct.

Nobody wants to own mortgage backed securities. So there’s no demand for ’em, even though there’s. Typically in these situations there should be. So until that demand increases, we’re not gonna see rates get any better. And with the fed, not buying mortgage back securities, that demand or that desire to own mortgage back securities has to come from the private sector.

So the third thing is data, a lot of data coming out this week a lot. Banks are actually having their own fed meeting. A lot of ’em are having runaway inflation. Like our, we are bank of England is actually worse. Europe is in a bad spot. Are they gonna raise interest rates? Japan is having their fed meeting.

Australia’s having their fed meeting. So we’re gonna be watching it to see globally what everybody’s doing. An interesting statistics, 75% of millennials, which is the age of 26 to 41. Gen Zs, which are age nine to 24 and obviously nine year olds, aren’t buying houses. Statistically. They think that buying a house is still better than reinvesting in their retirement account.

So there’s a lot of desire to own a home. We just have to figure out ways to make it affordable. And we’ve talked about some programs that we can do that with. So don’t get sucked into the. And the fear in the market, you still have to get out there and connect with your buyers and, and, and help them see the bigger picture.

Savings rates are down and another data that’s coming out this week on Tuesday, the PPI, the producer’s price index, another key measure of inflation. We expect that to be high. So with all this stuff, what are we looking at for the market this week? Lock we’re not floating. We are locking already in a lock position today.

So we’re just not taking a chance with anybody’s money. So if you have anybody that has concerns about the market about rates, go ahead and gimme a call and be more than happy to help you answer any of those questions. You know, somebody can benefit from this video, please forward it to them and have a productive week.

And we’ll talk to you next week. Bye.

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