Mortgage rates

If you listen to the “experts” you might have heard that mortgage rates are coming down next year which of course would be great for the housing market. Everyone loves low interest rates because buyers can qualify for a bigger loan and sellers can see their home values go up. The big banks and mortgage associations are all calling for it, so it must be true. Not so fast!!

The Fed Open Market Committee meets about every 4-6 weeks, and over the last 2 meetings, they cut their benchmark Fed Funds overnight rate by a total of 3/4 of a percent or 75 basis points (BPs). That means mortgage interest rates came down too, right? Actually, no they did not, because mortgage rates are indexed to the 10-year Treasury Note and the Fed does not control that, the bond market does. The ten-year note’s yield actually went up 75 bp. That’s a one-and-a-half percentage-point swing in the wrong direction!

I know you’re probably thinking, why would the bond market demand a higher rate for 10 years when the Fed is cutting short-term rates?

In one word, Inflation

You see lower short term interest rates are inflationary and if the bond market thinks that inflation is going to trend higher, then they will naturally push up the longer term yields to account for higher prices in the future.

I think it’s safe to say that every time the Fed cuts short term rates (and they have signaled that they are committed to that action), the Bond market is going to be tempted to push the 10 year yield higher to offset what it sees as more inflationary pressure.

Now look, I’m not going to say I know for sure what will happen, but I would say there is at least a 50 percent chance that longer-term bond yields continue

higher next year in spite of cuts to short-term rates. This is the exact opposite of what the Fed wants, but they just haven’t figured out how to get out of the financial mess we are in.

What does all this mean to the average buyer or seller of a home here in the Upstate and, for that matter, Nationally?

Well, lets start from the premise that mortgage rates may not be going down after all next year, and instead might just be going up. In that case, if you’re selling, sell now before higher mortgage rates push home values down. If you’re still lucky enough to afford to buy a house, buy now while you can still qualify for that 7 percent mortgage. I mean if mortgage rates go to 9 percent or higher, will you still be able to buy that home you want?

I want to close this by saying, that I am not a financial advisor, and what I’ve said here is definitely an oversimplification. There are many events, nationally and globally that could change everything, but most of the events that will push long-term rates lower are bad (think Covid). Therefore like it or not, higher mortgage rates are a real risk for next year and beyond and that’s an opinion you won’t hear from a lot of realtors.

By now, most of the readers of this blog know that I always try to give clients my honest opinions not just about their home’s value and the things that affect it, but also the overall financial landscape. Only when you consider everything, can you make an informed and educated decision about likely your biggest asset, your home!

Let’s talk about your plans for buying or selling so I can help you come up with the plan that makes the most sense for you and the time we are living in.

Have a great upcoming week!

Featured Listing of the Month!

UNER CONTRACT!!!
433 Doleman Drive, Spartanburg, SC 29301
3 Bedrooms, 2 Baths and 1,993 sf
Offered at $350K
Listing Courtesy Of: Keller Williams Greenville Cen, Sal Busacca, Listing Agent

Local Business of the Month

ROLLING VIDEO GAMES OF SC
864-757-5138
Looking for a fun idea for your Holiday Party this Year? We can make it snow!!
Call Us today!