“Just when I thought I was out, they pull me back in!” That famous line from Al Pacino in Godfather III, tells a similar story of what’s going on with inflation. After surging to 40+ year highs in June of 2022, the closely watched inflation reading Consumer Price Index seemed to have bottomed out this past June at just below 3% but the latest reading shows near 3.70%. As we know, higher inflation usually pushes borrowing costs, like mortgage rates, higher. That is what we are currently seeing, with the 30-year fixed rate mortgage now at highs last seen in 2001. But inflation is just one piece of the puzzle.
Another important piece is the uptick in government spending. There must be a tool to fund the increased spending. That tool is issuing more debt or more Treasury securities in the form of notes and bonds. Simple economics tells us that if there is more supply then there is demand, and in this case in the form of added bond supply, prices tend to decline which has pushed yields and borrowing costs higher. The 30-year fixed rate mortgage is now just above 7%. A spokesperson from Freddie Mac says, “Mortgage rates continue to linger above 7% as the Federal Reserve paused their interest rate hikes. Given these high rates, housing demand is cooling off and now home builders are feeling the effect. Builder sentiment declined for the first time in several months and construction levels have dipped to a three-year low, which could have an impact on the already low housing supply.”
But with so much negativity, could bond yields finally be attractive for investors? Could the market be at a point where it pivots and rates head lower? Or is the enormous amount of supply too much to get sopped up and rates must remain higher for longer? Time will tell.
Bottom line: Although rates are high, and inventories are low, people still need a place to live, no matter what the cost. You may not be able to afford a big mansion, but there are opportunities out there if you look hard enough. Like Louis Sachar once said, “Nothing in life is easy. But that’s no reason to give up. You’ll be surprised what you can accomplish if you set your mind to it.”
Source: Mortgage Market Guide
We are ready to help you find the best possible mortgage solution for your situation. Contact Sheila Siegel at Synergy Financial Group today.
