Mortgage rates jumped from mid 5s to low 6s in just a couple of days. Friday’s high inflation level of 8.6% and this Wednesday’s Federal Reserve meeting is messing with the investor’s psyche on what yield they need to buy mortgage-backed securities.
Reality, the Federal Reserve is way behind the 8 ball on inflation, and the previously expected increase of .5% of the Fed Funds Rate may not satisfy the urge to bring inflation down. Inflation is the bond investor’s worst enemy, as it dilutes the yield of their investment. Generally, an investor wants at least 1.5% or so higher than inflation as a yield. Think about it, with 8.6% inflation, the cost of servicing the payments, 30 year fixed should be around 10.5%… That’s not going to happen.
Oil cost and inflationary pressures will act as a tax on spending, and the Fed’s increase in rates (directly affecting credit cards and lines of credits), will curtail consumer spending, and slow the economy.
Note the chart of the 10 year minus 2 year chart. When the short term rates are higher than the long term rates, generally a recession follows (shaded areas).
When a recession hits, rates will drop, but from what level? I’m putting borrowers in intermediate Adjustable Rate Mortgages (7 and 10 year ARMs), expecting to refinance in the future. The savings with the ARMs are decent, but not substantial presently, but worth taking.
This has been a very difficult market to navigate through, but I get it, and have dealt with many economic cycles in the past.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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