The Fed paused alright – Jerome just talks up the rates now!
Rates moved only moderately higher on Wednesday after the Fed rocked the bond market with its updated rate forecasts. To reiterate yesterday’s analysis, it’s not that the market is expecting the Fed to be accurate in those forecasts. Rather, the forecasts help investors understand how the Fed’s approach will be calibrated going forward.
In simpler terms, the Fed doesn’t think rates are too high right now. If anything, they might need to go higher. Moreover, they won’t go lower until economic data really starts to deteriorate in a compelling way.
Unfortunately, this morning’s most relevant economic report didn’t deteriorate at all (weekly jobless claims were 201k versus a median forecast of 225k). Actually, it’s fortunate for the economy, but unfortunate for interest rates.
Between the data and the overnight momentum in overseas markets, bonds are at their weakest levels in years. Mortgage-backed securities (the bonds that dictate mortgage rates) didn’t swoon quite as much as Treasuries, but as of today, it was just enough to push the average mortgage lender almost perfectly back in line with the highest 30yr fixed rate of the past 23 years.
https://www.mortgagenewsdaily.com/markets/mortgage-rates-09212023
Need a reason to sell now, instead of waiting for next year? It doesn’t matter what you think of Peter or the content. It’s how many people who read this in the first half-day that matters – and this kind of doom spreads like wildfire:
Nice to see Schiff being impartial with his market analysis + upping the respect for Economists.
His prognosis is realistic too.
Take your average 1.3m 1970’s tract home in San Diego. Let’s assume a 1m mortgage. At 7.75% 30 year that’s $7160/month. The prognosis of 10% puts that at $8776. A 4.5% rate is $5060, 2.1k and 3.7k more respectively. There ain’t no way no how that price “adjustments” lowering the sale price can make up for that…well…unless the seller wants to shave off about half a mil. So people will sit tight and the pool of buyers will be increasingly cash. See? I’ve been paying attention to the Teach in here. Oh…but hello Brave New World…check out this new Barbie Apartment complex that is about to open near us. How does rent at $2125 for 225 sq. ft. and no parking spots sound? Yeesh. https://hotpads.com/a-modern-escape-in-the-heart-of-urban-mission-hills-san-diego-ca-92103-1n2gb67/708/pad
There’s an upside. There’s a thing called Net Present Value. Those of us who have sub 3% mortgages don’t have to pay off the outstanding balance. That would be stupid. Instead calculate the NPV and offer to pay that much.
A decent explainer: https://bestinterest.blog/npv-mortgage/
I didn’t double check but 20 years of 3% roughly 60% of the current balance at current rates. Thing is if you are paying 3% why would you be interested in paying it off?
Rob_Dawg: There’s an upside. There’s a thing called Net Present Value. Those of us who have sub 3% mortgages don’t have to pay off the outstanding balance. That would be stupid. Instead calculate the NPV and offer to pay that much.
You haven’t seen my outstanding balance! (Jim knows). The game plan is to have that sucker done in 5 years or less.
MND 9/22: It seems like September only just arrived, but our sights are already set on October as the scene of the next major battle in the bond market. Today’s trading session offered nothing of value, although it was “nice” to see a token correction in bonds after hitting multi-year highs yesterday. The coming week will be hard-pressed to reshape the narrative given the absence of big ticket data, but the following week has it in spades