Friday Market Update for the Week of September 18th

Happy Friday, Brian Manning here with the weekly update let’s get right to it. This week, we’re going to focus on two items. We’re going to talk about the Federal Reserve and Fall Fiesta because nothing else really matters. And there was other news this week, but the Federal Reserve and what they’re doing is probably the most important for us in our industry right now, so the Federal Reserve wrapped up a 2-day meeting. Jerome Powell has a press conference and he announces there, that they’re going to keep rates at 0% basically, until 2023 and beyond, just dazzling and exciting, and everyone is all excited and I get calls from clients of, “Oh my Gosh! the Federal Reserve is keeping rates low. Did mortgage rates go down? What happened with rates? Are rates going to be at 0?” No. Actually, this is all wrong, it’s a complete misnomer as far as what this translates into for mortgage rates and it’s really important for you to know what’s going on here so you can explain this to your costumers as well.

Okay, so the Federal Reserve also announced that they are going to let inflation run hot. So the standard since Ben Bernanke has been to not let the inflation go past 2%. So it’s always been their benchmark, if inflation hits 2%, the Federal Reserve raises rates, and as it raises rates, they’re trying to really get inflation to go down lower. Well now, Jerome Powell says, “Hi, we’re going to let inflation run hot. We’re going to let it go up to potentially even 3%.”

So how does that negatively affect mortgage rates? Well, if you think about a mortgage, a mortgage is a 30-year fixed-rate mortgage, if you get a loan today and you’re an investor that gives money for this mortgage, you’re going to give money and you’re going to have this guaranteed rate of return for the next 30 years. So if you’re an investor and a mortgage lender and you’re looking at mortgage rates and you’re trying to figure out where to put your rates and you’re pricing them out going forward, if you start to see the cost of goods going up then you have to increase your rates, and the reason why is because say, you give a mortgage today at a 3% interest rate, and that’s your guaranteed rate of return for the next 30 years, well if the cost of goods are increasing – that 3% interest rate that you’re getting as a guaranteed rate of return for the next 30 years, it diminishes your buying power, right?

Because the cost of goods is going up but your rate of return is staying the same, so on mortgage rates the only way to combat this is if inflation starts to increase, mortgage investors are going to raise the rates to combat the cost and inflation going up as well, so what the Federal Reserve is doing sounds exciting and it’s great in the news, but inflation is the enemy of bonds and it is flat out the enemy of interest rates and you are going to see interest rates rise at some point in time as the Federal Reserve sits back and lets inflation do its thing as well, so make sure you’re educating your clients on what the Federal Reserve does and when they say they’re keeping rates at 0, that has no impact at all on mortgage rates, in fact, it’s going to be detrimental in the future.

It doesn’t mean tomorrow rates will go up, but it does mean as inflation starts to increase, you’re going to see rates go up. and the near-term, what we have to look at is we now have, I don’t know, 29 or so million people that are receiving unemployment so as the economy starts to bounce back and demand from us as consumers increases, but the production is not there, because you have so many people that are receiving unemployment, the cost of goods is going to increase, so we could start to see inflation sooner versus later which means you’ll see mortgage rates rise sooner versus later as well. So, anything you’re looking at doing right now – buying a home, refinancing – rates are rock bottom capitalize on it while you can.

Number two we’re going to talk about this week,Fall Fiesta, so excited McDevitt’s Taco Supply, we’re going to pull this off this year. October 15th, that’s going to go from 5-8pm. It’s going to be a meal pickup, I know it’s not the same as the other years and I’m super bummed that we can’t rent out a restaurant and do it like we’ve done for the last 5 years, but we’re still going to pull up our 6th annual Fall Fiesta and it’s going to be phenomenal, we have live music there’s two options for your meal pickup, if you don’t want to get out of your car for safety purposes, no problem. This is a super COVID-friendly event. You’ll be able to drive through and get your meal pickup, if you want to hop out of your car pickup your meal and catch some live music as well, we have some really exciting special musical guests, you’ll be able to come out, listen to music, grab your food as well, so Fall-fiesta.com is where you can RSVP, so that’s Fall-fiesta.com, go to our website, RSVP. Make you sure you stay in touch because we keep putting out information of the meal pickup, how that’s going to work and how we’re continually focused on keeping this a COVID-safe event.

Have a great day, happy Friday,
I’ll talk to you soon.