Fed Raises Rates for 10th Straight Time
When are we going to get off of this roller coaster with the Fed? The Fed just announced its 10th straight rate hike, so what does that mean for homebuyers?
In the Fed's speech, they omitted some key language which has a lot of people interpreting this as the Fed saying that this is going to be the last rate hike. The Fed’s post-meeting statement omitted a sentence present in the previous statement saying that “the Committee anticipates that some additional policy firming may be appropriate”. Could the 10th straight rate hike be the last rate hike? It looks like it may be, at least for the time being.
How Does This Affect Homebuyers & Mortgage Rates?
How is that going to affect everybody, especially homebuyers? As a homebuyer, long-term treasuries are starting to come down. Short-term treasuries are actually going up due to the potential US debt default. Long-term treasuries are actually decreasing because they’re more tied to 30-year fixed mortgage rates so it's possible that we actually see mortgage rates, especially at 30-year and 15-year rates start to come down over the short-term and even long-term.
I asked a local mortgage broker recently what the average rate was and we're looking at around 6.5% conventional and around 6% FHA. That's a lot more affordable than we've been with rates above 7%. Furthermore, a lot of people are predicting that we're going to see rates around 6% by the end of the year because there's been just a lot of fear and uncertainty priced into these rates because they didn't know how far the Fed was going to go. Now that there's that potential ending line, those 30-year and 15-year rates probably will start to come down over the short term.
Short-Term Volatility Due to 10th Rate Hike
We have gotten some rate relief here recently, and it's expected they will see some rate relief long-term towards the end of this year and even into next year. In the short term, we may see a lot of volatility, there has been volatility with bank stocks, especially regional banks that have recently either failed or are rumors of additional bank failures so which could create some instability in the marketplace. The potential debt default obviously could create a lot of unknowns and uncertainty in the mortgage market in the short term as well.
The other thing is a lot of lenders have been losing massive amounts of money, losing money on every mortgage that they make. The question is, how much of the potential rate savings that the lenders get will they pass on to consumers? How much of that are they going to try to hedge their bets in case rates do go back up or just trying to recapture some of that profit that they lost?
Market Manipulation by the Fed
On a side note, when are we going to get off of this roller coaster which is the Fed? We're having extreme highs and extreme lows in the economy, which is really just market manipulation. It's not true capitalism, we no longer have that in this country. We just have Fed manipulation within our marketplace. Unfortunately, this Fed manipulation has created a huge wealth gap that we've never had in this country before.
It's benefiting those that have assets, especially leveraged assets, which is creating inequality for folks that do not own assets and are savers. People that have savings are getting robbed on a daily basis from inflation and for those that don't own assets, their purchasing dollars continue to get spread less and less as the wealthy get even more wealthy as we have this massive inflation.
It's really not the fault of the wealthy, they're not the ones that have been pumping this money into the economy and doing all this market manipulation by the Fed. They benefited from it but it's not their fault. What we really need to do is fix the Fed or really just eliminate the Fed and get off of this rollercoaster that's really challenging our society. It’s creating these huge inequalities of wealth gap on one side, it’s creating this shrinking middle class, and then a lot of people can’t build wealth through real estate and owning assets because you have inflation of asset values and higher interest rates to where a lot of people are just priced out of the market. Real estate and owning assets is where you build wealth in this country, for example, there is a 40x net worth increase when you own a home versus just renting. The Fed is really destroying that, let's take the Fed out of the equation and just let the market do what the market should do.
Things Could Be Worse
With as bad as things are right now here in the US, things could certainly be much worse. A lot of people are saying “The US has the cleanest, dirty shirt of any shirt around the world”. We just had a Fed rate increase of 0.25% but if you look at other countries like Argentina, they just had a Fed rate increase of 3% which brought their overall rate to 81% because they're fighting inflation, which is predicted to be above 100% for this year. As bad as our inflation is here, it definitely could be a whole lot worse than it is in other parts of the world.
You might be thinking with everything that's going on with the banking crisis, the debt crisis, high-interest rates with the Fed; what should I be doing? If you're a renter, I would be looking at purchasing a home because homeowners have 40x the net worth of homeowners versus renters. There's actually a survey out there that this high inflationary environment is actually creating additional demand long-term for housing because people are seeing how the negative effects of high inflation can destroy your wealth and destroy your buying power in terms of the increased rent and increased home prices.
The other thing I would recommend people do is to try to move their currency out of the fiat system that we have because our currency really isn't money. Money is a store of value, but our money is not a store of value because it becomes less and less every year. You used to be able to buy ten tomato soup cans for a dollar, but now you can't even get a single tomato soup can for a dollar today. The value of the dollar continues to get less and less. So move that money out of this fiat currency where they can just create more and more of it into something that's going to have lasting values such as hard assets like buying a home or buying physical metals. Real estate really has been one of the biggest proven wealth generators over the history of time.
If you're looking to move your money out of fiat currency and into real estate, contact us here or email us at email@example.com and we'd be happy to advise you in your particular situation and help you gain the most wealth.
Posted by Matt Curtis on