The Right Conversation Does NOT Start with OH SH*T
Yep… the 10 yr treasury went above 2% on Thursday and .. rates hit 4%. Friday gave some of that back as the 10 yr dropped back down to 1.915. So why did the stock market drop 1.5%, the 10 yr go above 2%, and the 2 yr treasury jump 35 basis points on Thursday? Because an outlier Fed member James Bullard called for 100 bps in rate hikes prior to the July 1st Fed Meeting.
There are only 3 meetings between now and July 1st, so that means the first meeting would need to be 50 bps (or a half a point) as a “catch-up”. Bullard said that as the CPI came out at a whopping 7.5%. Expectations were for 7.2%, .3% higher.. that’s a small difference, does it really matter? It does! Because the markets knew Fed Chair Powell and the Fed board are in the middle of quantitative easing, planned 3 to 4 rate hikes and then start quantitative tightening (QT). We already had two mortgage rate jumps earlier this year with the news of QT. But the higher than expected inflation told the market that the Fed was again, behind the 8 ball. And then Bullard spoke.. and confirmed.. the Fed is fact behind the 8 ball. The markets did NOT like that as the markets do not like surprises.
As the Fed raises the Fed rate, long term rates will calm and may even go down. Inflation is the arch enemy of bonds and rising fed rates puts a brake on the economy by making the cost of money higher. That increase in the cost of money will reduce liquidity and force innovation as the cost to reinvest will go up. Slowing the economy is exactly what we need. How fast the economy slows and if it is forced into a recession is the unknown. Every unknown causes market unrest. Alternatively, the quantitative tightening will put upward pressure on rates as the biggest buyer of mortgage backed securities puts more supply in the market. So the tug of war begins.
Are Rates Really Above 4%?
Whenever I show rates.. it is not specific. I want to double click on this. Freddie Mac has a website that shows national average rates with a discount point. The small nuance with Freddie Mac is the survey is done Monday and Tuesday of that week.. so on a week like last week, they did not catch the market move on Thursday. MBS also puts out a report with rates which is more current with no discount points but again.. it’s averages amongst a large group of lenders. Additionally each client has a different scenario, set of qualifying factors and available rates. So ultimately, it’s the movement and trend of rates we are watching.
I am working on adding a page to my website where you can track the daily trend in rates with mortgage calculators to see the impact to the rates on a monthly budget. Watch for an announcement.
It’s a Bad Time to Buy!
Fannie Mae’s Home Price Sentiment Index came out this week reflecting that younger consumers.. in fact all consumers… grew increasingly pessimistic about homebuying conditions. The Consumer Sentiment Index came out the next day falling to the lowest level since 2011. Okay… are you surprised? I am not. With the price of everything going up; anyone who isn’t currently rolling in the profits of the stock market is feeling the pain. Did you know that the top 10% own 89% of ALL U.S. stocks. The top 1% gained over $6.5 trillion in equities wealth. the bottom 90% gained $1.2 trillion amongst all of them. So who benefited? Not the first time homebuyers you are trying so hard to help.
Not only do they need or want to buy a home; but then they have to furnish it. The Consumer Price Index showed the price of all household furnishings were up an average of 9.3% year over year. That’s quite a bit more than the headline inflation number of 7.5%.
Floor coverings: 0.8% month over month, 7.2% year over year
Window coverings: 1.8% month over month, 16.2% year over year
Furniture/bedding: 2.4% month over month, 17% year over year
Bedroom furniture: 1.8% month over month, 13.7% year over year
Clocks, lamps and decorator items: 2.7% month over month, 6.3% year over year
Living room/kitchen/dining room furniture: 2.2% month over month, 19.9% year over year
Appliances: 1.5% month over month, 8.5% year over year
Nobody likes competition when buying a home. It can be stressful enough when the markets are regular, like they were from 2014-to 2019. Now we’re in years 2020-2024 and not only has inventory dropped to all-time lows, but we’re also dealing with the most significant housing demographic patch ever recorded in U.S. history: move-up buyers, move-down buyers with a lot of cash, investors and all-cash buyers. The Home Price Sentiment Survey was never about people saying they never want to buy a home; just the conditions for buying a home are terrible — and I agree with them. Interestingly, the same report reflected the percentage of people who said it was a bad time to buy also showed it’s also not a good time to sell. It’s the stress.. and it’s high.
Bottom Line:
2022 will be about adaptability, volatility and continued rising prices. At some point the economy will be stressed to slow down and rates will take a deep breath… but we do not know when that will be and at what level. So I always come back to today is the best time to buy. It’s hard out there.. but diligence is key! I have buyers with little down, down payment assistance and FHA going under contract. Use weekends like this.. Super bowl weekend, and homes on the market more than 4 days to help your first time home buyers get in. Because as rates go up; their purchasing power WILL go down. The double whammy here.. prices are going to continue going up this year.. and next … and next. Demographics tell us that!
[author] [author_image timthumb=’on’]https://www.theruethteam.com/wp-content/uploads/2020/11/testimonial_image.jpg[/author_image] [author_info]Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients. www.TheRuethTeam.Com.[/author_info] [/author]
