Defying Predictions Of "Rate-Ageddon
Mortgage rates fell almost 3/4% since mid-October – while the 10 Year Treasury yield fell about 6/10%.
We’ve seen rates fall before, so who cares?
Some Analysts Were Predicting Double-Digit Rates!
Well… it was only a month ago that both mainstream and social media channels were lit up with reports of “higher for longer” and predictions of double-digit interest rates coming soon.
The reasons included (1) entrenched inflation from higher energy, labor, and manufacturing costs; (2) way more Treasuries/debt than the market could absorb coming to market; (3) soft landing, aka no recession, predictions; and (4) comments from the Fed about holding rates higher for longer.
My Bet Is That Rates Will Be 1% Lower By The End Of March
I in fact made a bet with the owner of a prominent Bay Area real estate brokerage that rates would be 1% lower by the end of March – and I hope he’s saving his money. (OK… we only bet “dinner” and he could afford to buy the restaurant let alone dinner, but I do hope he’s prepared to lose ).
In any case, he too had bought into the "higher for longer" narrative – and he will be right – but not in the short run I don’t think.
Rates are falling because the economy is showing too many signs of weakness and bond investors see them all, including (1) a continual decline in the Leading Economic Indicators Index; (2) falling oil prices, despite supply restrictions; (3) clear cracks in the labor market; (4) credit/bank lending contractions; (5) enormous concerns on the retail front; and (6) mass layoff announcements.
The Fed Does Not Control Rates
Jeff Snider likes to remind us that the Fed can only distort rates, and that it cannot control rates – especially longer-term rates. Per Snider, it is only inflation and economic growth signals that control long-term rates over the long run – and that seems to be what we’ve seen play out over the last month.
So, yes rates will very likely continue to fall as we slide into a recession (or as investors recognize that we may be in a recession already). But, once again, I doubt they will stay low for very long. The concerns about too much government spending, borrowing, and “money printing” are real and they will likely result in inflation and much higher rates – just not in the near term.
DSCR Loans Only Need A 620 Score!
CORRECTION: DSCR Loans (loans that require only rent for income) only need a 620 credit score. In my Monday blog about DSCR loans, I said that DSCR borrowers need a 680 credit score to qualify. An Account Exec from Newfi (thank you Julie) saw the blog and let me know that they allow scores as low as 620!
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