The FED is raising rates. It sucks. Like, dang it. But why are mortgage rates going up? You know that the rates they are raising are for short term liabilities right? I heard from my mortgage people. I talked to some other people. The immediate future is, whoa. And if you think there will be a recession, I just want you to know why. I know you’re hearing about it. But let me just take a few minutes of your time to talk about how this is going to affect us in this real estate market, right now.
Let’s be clear, the rate hikes that are happening, are only happening for short term liabilities. That’s credit cards, cars, things that are getting paid in short timelines, not mortgages. So why are mortgage rates going up right now?
The answer lies in the last few years of low rates, and how these rate hikes are affecting the stock market and bond purchases. Investors aren’t buying stocks, and you can’t sell bonds at high rates that too high, but they also can’t make money if the rates are too low. So mortgage companies are selling high rate mortgages right now, effectively to make up for 2 years of rates that were too low.
Now, let me be completely clear – I’m not a lender. If there’s a lender watching this that wants to chime in or do a zoom together to better explain that process, I’m totally open and would love to do so, but for now, that’s the info, folks. Rates are up to make up for lost income. We’re seeing some corrections on the mortgage side the same way we saw corrections to market prices in the last two years. Yes, that means that I think the price hikes were generally a market correction, so NO – I don’t think we’re in a bubble. At least not holistically as a market here in middle Tennessee.
So, where are we now? What should we expect for the future? Well, once the Fed stops playing with the major investors’ dollars by stopping all these rate hikes, I think the stock market will gain a chance to balance back out, and I’m confident that mortgage rates will lower quite a bit. I also don’t think it’ll take that long for that to happen. I think we’re looking at about 12 months of this, with rate hikes stopping by the end of the years, if not by the end of this quarter. I just don’t see the numbers balancing out of favor for much longer and the FED won’t have a reason to keep this up.
Now this may be shockingly optimistic, but hey, I like to look at the silver lining and give the system one big benefit of the doubt. That benefit is, specifically, that our country relies too heavily on capitalism. Dollars will ultimately be the reason to turn the faucet back on. Look at what happened during the pandemic in Nashville. It took what, two weeks for the bar owners in downtown Nashville to reopen after the first lockdown, smack in the face of the policy makers around here? Dollars win in America, nothing to argue there. I do think we’re coming out of this soon, and I see only short term recession effects, if any, especially in this market.