So far, 2022 and 2023 have been the most volatile mortgage rate environments that anyone I talk to in the real estate business can remember. One minute it seems inflation and the economy are showing signs of cooling off and then the next thing we know, we get a crazy jobs/inflation report that signals the opposite.
I spend a lot of time reading, watching, and listening to various perspectives on the economy, market, and inflation to try to make sense of what is going on. The best economists, money managers, and real estate gurus seem to have an opinion on what is going on though it’s challenging to get a pulse given all the conflicting data. The truth is, we’re in uncharted territory and no one really knows what is really going to happen.
What really matters is what the Federal Reserve thinks is going on and how they will respond. If they feel the economic market is showing signs of weakness, they get dovish, but as soon as a report comes out that signals strength in the economy, they quickly become bullish. The FED must be very careful how they speak and react about what they are going to do with rates. They have so much power and control over rates and unfortunately, rates control a lot of things in the economy.
The mortgage rate rollercoaster isn’t going away anytime soon because the data that we keep seeing is very mixed and often contradictory. It’s no doubt the fed has a tough job. One thing is for certain, they put way too much money in the system for way too long and now they are trying to take it out of the system as fast as they can. The Fed has a target, and they are laser-focused on that target, whether that is a 2% inflation goal, a certain number of jobs lost, consumer spending needs to pull back and ultimately, they need to cause a recession to hit their target faster. At this point, it appears they are going to stay fast and steady on their goals until they have certainty that inflation is under control.
One day (whenever that day comes) the FED will hit its goal via a soft or hard landing. When that day comes, we will definitely feel it and likely come to realize that we probably went too far. Who knows, maybe the FED will get lucky and land the plane softly. I say lucky because historically the fed has a reputation for overdoing it. Once they feel they’ve reached their goal, they will then signal a change in policy that will reflect a change in what they are going to do with rates. Once this day comes, this will signal to the market that we are most likely going to see the Fed pivot from QT (quantitative tightening to QE (quantitative easing). This will change the mindset for the fed and the rest of the world that rates are most likely coming down, slow or fast, depending on how much damage they did.
When this does happen, the $8+ Trillion dollars sitting on the sidelines in the US will slowly come back into the economy. If you have been living on an island or under a rock for the past 3 years and you don’t know what $8 Trillion dollars coming back into a market looks like, well just remember when the fed and the government pumped about that much money into the economy in various ways when the pandemic hysteria started… well that’s what it looks like when the fed gets involved to kick start an economy.
When this day comes, this will be a great signal for homeowners, first-time buyers, and real estate investors that money will now start to flow into the housing market after mortgage rates have been climbing higher.
Thank you,
