August — The Fed Hike Rates Another 0.75%

As we close out July we saw the Fed hike rates another 0.75% which was already priced into markets based on the Fedʼs prior commentary. I donʼt think itʼs a question of “if ” the Fed will continue to hike rates, the only real question is by how much?

What Happened in July with Mortgage Rates?

Surprisingly the month of July was a pretty flat month when it comes to mortgages and overall mortgage rates trended for the better during July. We started July with Mortgage Backed Securities (MBSʼs) trading around 101.03 and ended the month with MBS prices at 101.82. The higher MBS prices are, the lower actual mortgage rates are. The 0.8 differential is not significant in the grand scheme of things but it’s trending in the right direction and might give us a little insight for things to come later in the year.

Will the Fed Increase Rates at its Next Meeting?

Fed Chair Powell said that another unusually large increase could be appropriate at their next meeting but will depend on the data between now and then. The Fed meets again in September and in the past when theyʼve used the term “unusual” it means another 0.75% in rate hikes.

I wouldnʼt be surprised to see another large hike in September as the inflation figures we have been talking about have not gone down and the Fedʼs #1 priority this year was to lower inflation.

The Fed is in an almost no-win situation right now. If they donʼt hike rates inflation will get even further out of control, but if they hike too much it could send us into a recession and also have other negative economic consequences.

What’s a Recession, Anyway?

As I write this we might already be in a recession since the first reading of GDP for Q2 was released yesterday which showed -.9%.
Remember that Q1 was a negative number for GDP and a recession is technically when there are two quarters in a row with negative GDP. The NBER has not officially announced a recession yet as they wait for other reports and data to be released, but we would not be surprised if the other reports show a negative reading as well. Are we in a recession, are we not, does it matter????

Does a Recession Make You Want to Own or Not?

The question I ask myself as it relates to housing is whether we are in a recession or not does that change my mind as far as wanting to own a home or move to a new home? Everyone will have a different answer to that question but history has shown us that trying to time a market perfectly can be a fool’s errand. Iʼm not suggesting that homeownership shouldnʼt be strategic or well thought out since I believe that is exactly what homeownership should be.

“Time In” vs “Timing” The Market

I am however stating that real estate is a “time” thing not a “timing” thing. If you are looking to buy a home now, you can afford the payments, and you plan on owning it for 10-15 years. I can say with complete confidence that at the end of the 10-15 years the home will be worth more than you paid for it today.

If you are looking to buy and your timeline is only 2-3 years of owning it then that is a dicey proposition in the current market. I do not see home prices plummeting like we saw in 2008 and 2009, but I wouldnʼt be surprised if prices flatten out and the massive appreciation we experienced the past couple of years slows down.

As with any major financial decision, everyone’s situation is unique and we encourage you to give us a call to discuss your individual situation. Feel free to forward our information on to your family and friends and we look forward to staying in touch.

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