Information & Interpretation!
The FED FINALLY woke up and took a positive step toward dealing with inflation. Despite being less than what I would have liked to have done, 75bps and another likely 50 to 75 bps again in June should signal to the markets a serious approach to fiscal stability. The future remains to be seen, but this was at least a positive first step and the initial market reaction was strongly in favor of this new direction.
The challenges are still great, and the interpretation of this move and pending moves in the future will be mixed. It may also take some time before we actually find the new “normal”. PLEASE don’t get involved in over hyping or sharing ridiculous rumors and speculation. Common misconceptions are:
- The FED just raised mortgage rates. We all know that isn’t true, but people believe it. Prepare a chart that shows that mortgage rates often go LOWER after the FED raises short term rates.
- Higher rates will cause home prices to decline. While higher rates will reduce the purchasing power of the consumer, home prices are a function of supply and demand, as well as the cost of all other shelter. With rents continuing to climb and more family formations than housing units net growth, I’m not sure how we eliminate the demand quickly.
- Higher rates will stop inflation. Not exactly so. There are MANY factors in determining inflation, and much of the data used to determine inflation numbers excludes the cost of many items like food and energy, as well as regulation and supply chain issues.
While this is a good first step, there are still many other steps that need to be taken. Unfortunately, those steps won’t be coming anytime soon as many government officials continue to act; the first of which to even acknowledge there is a problem. Now that Jerome Powell has seen the light, we can only hope others will follow. From a mortgage perspective, share accurate information like a 30-year mortgage average rate chart, that will help show that 6% rates aren’t the end of the world!
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