Let’s talk Interest Rates vs. Inflation Concerns

Consumers haven’t been this down in the dumps since 1993. The March consumer sentiment index declined to 57 from 64.7 in the University of Michigan’s latest survey. The American shopper is expecting prices to rise over 4% annually for the next 5-10 years.

Meanwhile, loan officers and realtors across the country are posting at cringe worthy frequency about interest rates falling! 

Why is it cringe? If you’ve been here a while you know, bad news is good news for mortgage rates. Which means that when mortgage rates are falling, the economy and people’s overall finances are usually not thriving. Interest rates improving is definitely good news, don’t get me wrong and I will come back to that in just a second. But first… 

$6 TRILLION GOES POOF 

In just 2 days, 6.6 trillion dollars vanished from the stock market. The Dow fell 2,200 points today after China announced a 34% tariff on US goods. This was of course after Trump’s Liberation Day announcement of higher tariffs on almost every nation. The question is, will the US economy pivot from being the envy of the world to simply the global market disruptor?  If the latter, that would displace America’s power and potentially land it with China or another trade rival. For once, I don’t want to make any predictions here, but we should all be aware if the tariffs go into place as outlined, we will match the tariff policy that was blamed for the Great Depression. I’m referring to the Smoot-Hawley Tariff Act of 1930 for those of you nerdy enough to fact check me. 

Oh, and it is Job’s Week. 

Usually the headline of this blog and every other respectable news source on a Job’s Report Friday is the headline jobs number. It’s just been such a bad week for markets that investors couldn’t even take solace in the fact that 228,000 jobs were added last month. I can’t make this shit up guys. We were expecting a number around 140,000 but instead, in what typically would have blown out mortgage bonds and set me up for a really dreadful day, we got a much, much higher number. Granted this data is retrospective right? Last month, financial markets weren’t on the whole down by 10%. There’s a but though. Unemployment crept up to 4.2%, which is a bit of a magic number. 

JPMorgan’s top analysts have increased their recession bets to 60%. 

Rates are off to the Races. 

Speaking of things that would typically be unwelcome news for mortgage rates, how long will this rally on bonds last? Mortgage rates are dipping into the 5’s and you’ve probably heard about it on Instagram. (I didn’t forget that I promised we’d talk about how cringey that is.) I hesitate to say rates will continue to go down, not only because recent history has been quite the mean girl to me when it comes to windows with improving rates, but because we are facing very real inflation concerns. Inflation is not the friend of mortgage rates. So as inflation ticks up, my opinion is that if a recession doesn’t accompany it, we could see this rally on mortgage bonds end as quickly as it began. 

Are the inflation concerns real? 

Hmm. Let me pretend to ponder this. We are in an interesting spot. Inflation numbers overall are trending in the dead wrong direction. While the year over year numbers came in lower-than-expected last week, it was still an increase. More importantly though, the 6-month rate on inflation is currently at 3% and the 3 month rate is up to 3.5%. Inflation is clearly trending in the dead wrong direction as I explained last week. 

What to do, what to do.  

So now that we know that interest rates are improving on the heels of some very serious concerns for American economy  – here’s what I think we should all be focused on instead. It’s not that interest rates are suddenly making it a great time to buy. That would be pretty hypocritical for your favorite realtor or lender to say now, considering they’ve been telling you to buy now for the past two years when rates were higher. The real reason it’s a great time to buy a home, to invest in real estate is the potential return on investment. While other asset classes are literally bleeding out right now, the forecasted appreciation gains on homes are actually increasing. Here in Northern Nevada, the forecast for home appreciation in five years has now passed the 20% year over year mark. That is a huge return on investment just for paying for a place to live. 

I hope to see you all for the She Wins class next week – it’s online and open to absolutely everyone.