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Debt Ceiling Effects on Mortgage Rates
Debt Ceiling Effects on Mortgage Rates
The biggest news currently with regards to the economy and the market is of course the Debt Ceiling Debate. The rates in regards to mortgages have certainly seen struggles over the last 2 weeks due to this debate and the fact that we are drawing closer to a deadline with a risk of default if the Debt Ceiling is not raised.
One would not think that the Debt Ceiling has anything to do with mortgage rates, and truthfully it does not directly, but indirectly is another story. We must remember that the U.S. relies on foreign central banks and international investors support of the U.S. Dollar as the world’s go-to currency. A mere risk or mention of potential default by the U.S. government in regards to its debt precipitated by a failure to raise the debt ceiling which is what allows us to pay our debts causes an increased ripple effect on the volatility of the U.S. and global economy. This alters the otherwise positive presumption that U.S. Treasury bonds are a safe source of income.
Remember that any market volatility causes an increase in interest rate and right now the center of market volatility is resolving around the Debt Ceiling debate. Jerome Powell told lawmakers very blatantly that Congress must raise the U.S. Governments borrowing limit to avoid what he called “extraordinarily adverse damage to the global economy.” A direct effect of the Debt Ceiling Debate can be seen in the general ebb and flow of risk sentiment throughout the market. Two plausible outcomes can be seen moving forward.
Outcome One – once the Debt Ceiling Debate is resolved (prior to default) in a timely manner, investors will see less risk and become more interested in the normal day to day purchase of stocks and bonds which would alleviate the current heightened volatility within the market allowing rates to ease back down into a normal range of the low to mid 6’s. At which point the FED will continue on its stance of holding rates in that position throughout the course of 2023 in order to make sure the effect on inflation does its job.
Outcome Two – the Debt Ceiling Debate is resolved but goes all the way up to the wire of default, resulting in significant dire consequences such as downgrading of the U.S. Credit Rating which would weaken the U.S. dollar and the ability to pay our bills. This happens because as the dollar weakens in value it costs more to pay of that debt. Popularity of U.S. Bonds weakens, the market continues to see increased volatility, ultimately resulting in a longer and more painful stretch of heightened interest rates.
Over the last 6 months we have discussed that we are on a bumpy road, with this just being the latest bump along the way. The mini-roller coaster of interest rates will continue and it is a matter of time before we reach that final down-hill decent back into normalcy.
Market Watch
Drew Waack\NMLS#: 1573539
Is 10 the lucky number we’ve been waiting on?
The Wire – w/ Drew
Today marks Number 10 in the consecutive rate increase battle with the FED. This comes fresh on the heels of government data showing that U.S. economic growth slowed over the first three months of this year and amidst the recent collapse of First Republic bank which was number 3. Yes, inflation has fallen significantly from the peak it hit in the summer of 2022 but it still remains persistently higher than the Fed’s target of 2%.
The bigger news was the tone in which was used by Fed Chair Jerome Powell where he noted the removal of a persistent sentence used in many previous announcements. That sentence – “some additional policy increases might be appropriate.” Powell pointedly explained that the omission of that previous commentary was “meaningful,” and went on to say that a decision about any additional rate hikes would be purely “data dependent.” This tells us that at this time the FED does not have a future planned rate hike and should the incoming data follow its current trend we can expect them to hold at the current level. For those that have been following, you know that this is the signaling we have been waiting for since December!
Current FED Benchmark rate is now in a target range of 5% to 5.25%.
The ability to hold here is dependent on continued downward movement of data as we move forward. If we remain on that path we can expect much of the current market volatility to subside which would bring reprieve to the current heightened rates allowing them to settle back down into the low 6% range. Some of that decrease in volatility was seen today has the 30-year Fixed rate fell from 6.75% to 6.5%. Today we saw some of the lowest interest rates in the past couple weeks. Remember that just because the Fed hikes rates, does not mean that mortgage rates go up. Volatility within the market has a greater impact. With only 8 meetings per year that can result in Fed rate changes, the market has a lot of time to adjust its expectations in between those meetings as we often see. The market had already accounted for this hike, leaving only the ability to react to the changes in the Fed’s verbiage used, which was a big positive.
Current volatility continues to decrease as we approach the end of the day. The US labor market has continued resiliency despite the barrage of rate hikes which does lead to Powell’s original hope of a soft landing being a remaining possibility. Current projections suggest that we are at the end of the rate hikes but that the benchmark rate will be held as long as possible, my belief would be through the end of 2023. This would allow as much time as possible for the effect on inflation to be both large and long-lasting. We would then see the downturn of rates back into the 5’s in 2024 and a slow progression from there.
Drew Waack
NMLS#1573539
Leading The Way To “Be Better.”
Better Homes and Gardens Real Estate Journey is more than just a real estate company, we are a part of the community. We believe that community involvement is key to building strong, thriving neighborhoods where people want to live, work, and play. That’s why we’re proud to be a leader in community involvement, while sticking to our motto “Be Better.”
One of the ways we demonstrate our commitment to the community is through our participation in local events. We recently won the award for the most spirited hydration station during the Bentonville Half Marathon. This event brings together people from all over the area to support each other and push themselves to achieve their goals. We were proud to be a part of that and to support the runners along the way.
We also recently hosted the Better Homes & Gardens Editors Design Panel Event. This event brought together local designers and experts to discuss the latest trends in home design and decor. It was a great opportunity for us to connect with the community and showcase our expertise in the real estate, design and home builder industry.
In addition to these events, we also participate in Bentonville’s First Friday, a monthly event that brings together local businesses and community members for an evening of fun, food, and entertainment. We love being a part of this event and getting to know our neighbors. This last event had us hosting and entertaining the crowd with a beard contest.
Finally, we recently took over the square at the first Farmers Market of the season. This was a great opportunity for us to connect with the community and show our support for local farmers and businesses. We believe in the importance of supporting local and building strong, sustainable communities.
Community involvement is important to us because we know that nobody wants to buy a home in a community that isn’t thriving. By being actively involved in the community, we can help to create a strong, vibrant neighborhood where people want to live. We believe that building strong relationships with our neighbors and supporting local businesses is key to creating a thriving community.
At Better Homes and Gardens Real Estate Journey, we are committed to being more than just a real estate company. We are a part of the community, and we believe in the importance of community involvement. We will continue to be leaders in the community while sticking to our motto “be better.” We encourage everyone to get involved in their community and make a difference. Together, we can create strong, thriving neighborhoods where everyone can thrive.
Sigh of Relief as Inflation Calms
Wednesday Wire – w/ Drew
04/12/2023
This week all eyes are of course on the release of multiple economic reports, primarily the Consumer Price Index (CPI). This report has carried more importance over the past year than any other time as it is one of the most direct reflections of Inflation. Other reports include the ISM Manufacturing report last week, OER (Owner’s Equivalent Rent), and the JOLT survey (Job Openings and Labor Turnover.
The release of the CPI report was right in line with expectations showing continued slow down of inflation in March amid drops in gasoline and grocery prices. This puts US Inflation at 5% which is the lowest it has been since 2021. Remember that even though that appears to be great news, the overall target of the FED is to have Inflation closer to 2% meaning we still have a way to go. There is still much debate as to whether or not the FED will follow through with maintaining the current interest rate or make one final hike 0.25%. In addition to this the JOLT survey showed an addition of 236,000 jobs in March which shows a slight cooling off of the market when compared to the 500k plus jobs added in January. The job market is slowing at a measured pace.
Mortgage applications saw a significant increase last week amongst the interest rate drops climbing by 5.3% on a seasonally adjusted basis. Interest rates settled back into the mid 6’s this week as we continue to remain on a small roller coaster. The old saying “Time is of the Essence” rings much truth when applied to interest rates today. Meaning that the key is to lock in those interest rates on the low points of the roller coaster while attempting to avoid any of the high points. This is done through a process known as floating the rate in which a buyer can choose to have their lender not lock in the interest rate until a low period occurs.
Current projection on interest rates shows that we should have some more occasional softening of rates prior to the next FED meeting which is scheduled for the first week of May. I would anticipate this to occur over the course of next week as Economists try to gage whether or not the FED will impose an increase or not. Expect the lows to come in around 6.125% while the highs remain around 6.625%. The current trend over the last few months has held the lows occurring most often towards the end of the week.
On a side note – if you heard that FHA is now offering a 40-year mortgage, unfortunately you heard wrong. This question was asked of me several times over the past week. FHA announced a new Loan Modification Option that has a 40-year repayment term but this is an option for select existing FHA mortgages. Reporters misinterpreted the initial news because they did not read the released article thoroughly.
* interest rates may vary dependent on credit score and other factors
Drew Waack
Mortgage Advisor
NMLS #: 1573539
The Best of the Best
Better Homes and Gardens Real Estate Journey has been named the recipient of a national award for their exceptional performance within the Better Homes and Gardens Real Estate global franchise. The company has been ranked as #1 in net growth and in the Top 10 of units sold, showcasing their incredible dedication and success in the industry. Better Homes and Gardens Real Estate Journey raised their volume from $411,616,006 in 2021 to $632,205,801 in 2022, for a 13.64% increase in net growth and up 1466 units.
“We are thrilled to receive this recognition from Better Homes and Gardens Real Estate,” said Ben Fox, co-owner of Better Homes and Gardens Real Estate Journey. “Our team has worked tirelessly to achieve this level of success, and we are proud to have been acknowledged for our efforts. Our commitment to excellence and providing outstanding service to our clients remains our top priority.”
Better Homes and Gardens Real Estate Journey is known for being supportive and motivational, providing its agents with the tools and resources necessary to achieve success in the real estate industry. This recognition is a testament to their hard work and dedication, and the company looks forward to continuing its success in the future.
Several agents also earned national recognition. Matthew Bastian earned the 2022 National Rookie of the Year Award for his outstanding performance in his first full year in business. “Matthew hit the ground running. He is a professional and truly cares about his client’s best interest. This is what has made him number one in their hearts and earned him Rookie of the Year!” said Marion Aust, Principal Broker and Owner. The Mayer Team, with $49M in total sales, made Founders Club which is the top 1% of BHGRE Teams. Nationally they are ranked 14th. Natalie Edwards also made Founders Club as an individual agent, putting her in the elite group of 1% top sales agents by volume.
Additionally, BHGRE Journey was awarded the Greater Bentonville Chamber of Commerce “Main Street Member of the Year” award for their continuous community involvement, such as the Bentonville Half Marathon, First Friday’s, Farmers Markets, Parades, Special Olympics events and more.
Better Homes and Gardens Real Estate Journey is a full-service, inclusive, real estate brokerage firm with two offices that serves all of Northwest Arkansas. The company’s agents are committed to providing clients with the highest level of service and support, helping them achieve their real estate goals.
The growing Better Homes and Gardens® Real Estate network includes approximately 12,400 independent sales associates in approximately 420 offices serving home buyers and sellers across the United States, Canada, Jamaica, The Bahamas, Australia and Turkey.
Wall Street Journal Today: Walmart Helped Put Northwest Arkansas on the Map. Now Everybody Wants a Piece of It.
The once little-known region got a boost from the giant retailer and corporations like Tyson Foods and J.B. Hunt, but now workers from all over the country are flocking there.
Clio and Adam Mills didn’t know much about Northwest Arkansas when, in July 2021, they visited a friend who lived in Bentonville. Mrs. Mills, who lived with Mr. Mills in Los Angeles at the time, said they immediately fell in love with the “growth and excitement” happening there. They especially liked the local focus on health and wellness. She said the Cocoon Yoga Lab, a local yoga studio, is the best studio she’s ever been to.
The day after they arrived in Bentonville, Mrs. Mills, 37, founder of the digital and talent marketing agency Booje Media, asked to meet with her friend’s real-estate agent. “We met with her the next day,” she said. About a week after their visit, the Mills put an offer on a three-bedroom home on over 3 acres in Bentonville. They closed on it for about $550,000.
