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Jason Obradovich - Chief Investment Officer

30 Year Fixed – 2.500% / 2.665% APR   15 Year Fixed – 2.250 /2.319% APR   FHA 30 Year Fixed – 2.250% / 3.015% APR   VA 30 Year Fixed – 2.250% / 2.632% APR

Rates are current as of 9:00AM PST on 07/26/2021 | View Disclosures

Housing Market News & Updates

Translating the complexity of the markets into a concise and easy to digest format. Watch videos, read blogs, and view key data on short and medium term trends impacting interest rates, so you can make the right decision for your situation.

Latest Market Update

Inflation vs Growth

 

Jason: Hello, everyone, and welcome back to the Mortgage Rundown. Today, we’re going to talk about the Federal Reserve.

If you haven't seen it by now, yesterday the Fed released their minutes from the last FOMC meeting. What we saw in the minutes this time was a divided FOMC where some are concerned about inflation and some are worried about risks to growth. And there's this battle going on between the two where we're seeing rates start to move up and rates start to move back down.

A lot of people are asking questions in terms of it looks like rates are going down and are they? Well, if you look at the graph on your screen, you'll see the 10-year Treasury. And very clearly in the most recent 30 days, we're seeing rates trend down, almost lower than they've been in the last four months.

Well, let me show you another graph. This is the two-year Treasury. And if you look at the two-year Treasury, it's actually been going up. Now we see a little bit of a dip in the last week or two. But by and large, over the last four to six months, short-term rates are going up.

Now, mortgage rates really haven't moved at all. So, here's a graph on your screen of mortgage rates. So, we're really not seeing mortgage rates move, but we're seeing the short term of rates going up and the short-term rates really are reflected by what's happening or what the Fed's going to be doing. And when you see short-term rates going up, that means the market's expecting that the Fed's going to be raising rates pretty soon.

When you see long-term rates going down like we saw in the graph of the 10 year that means there's risks or the market's perception of risk that long-term growth isn't going to be as high as we think it is.

And so, how do they deal with inflation right now? They really can't do a lot and they're really afraid to do anything. And so, one of the things they're talking about, one of the important parts of this, the minutes released that that just came out yesterday was they're thinking about tapering MBS purchases. And what that means is they don't want MBS or mortgage rates to be as low as they are because those low rates are driving home prices up. They're driving rent up.

So, the Fed by their own doing is causing inflation to go up in a more permanent way. We've heard them talk about inflation being very transitory or very temporary. Well, these are some things that are moving up and are very permanent.

I would say there is some fear that mortgage rates might go up and not tomorrow, not next week, but probably in the fall. And so that's something we really want to take from the minutes. Alright everyone that's it this week from the capital markets desk. Thank you all for watching and have a great day.

Previous Market Update

Inflation Is Here

Hello, everyone, and welcome back to the Mortgage Rundown. Today, we're going to talk about what's happening with interest rates.

So, by now, you know, the FOMC met and didn't do anything. So why did mortgage rates actually go up? They didn't raise rates, but they did come out and say they are going to raise their inflation expectations. And as you might know, if you have an interest rate or a fixed-income security and inflation goes up, you're actually going to see a deterioration in value. Why would I want to own something that has a 1.5% yield? And all of the sudden now inflation is 4 or 5% and maybe even higher.

And so, what the Fed did was something very subtle, but very important, and that was to raise that inflation forecast. And almost more importantly is they came out and said, “look, we're also going to move up when we actually expect to raise interest rates in the future to 2023—if you own a mortgage-backed security, right? What goes into mortgage-backed security? Mortgages. What's the length of time of a mortgage? Most of them are 30 years. So, if the Fed is going to be raising rates sooner and you have this fixed-interest earning asset for 30 years, now, all of a sudden it’s going to be worth less and less or the perceived value is going to be worth less and less.

And so that's why yesterday when the Fed came out with the announcement, even though they said, “Look, interest rates are unchanged,” it does have an impact on mortgage-backed securities where rates are actually going to move higher.

But this is the first step of them saying, “we're going to be raising rates at some point. It's just not right now. We're going to let inflation last for at least the time being, for the end of the year, maybe even to next year, because there are these other risks.”

We have the pandemic. I think, by and large, most people believe the pandemic is kind of moving behind us. But what happens if there's another variant, right? What if that causes some type of shutdown or localized shutdown because of a variant? Right? That could be a real risk. Well, unemployment rate, you know, I'll put up on the screen for you. You can see where our unemployment is. Unemployment skyrocketed during the pandemic, is coming down, but is nowhere near the levels of where they were before the pandemic.

And so, in summary, what the Fed has said is, “Look, we expect inflation in the short term to continue. We're going to let it happen. It could be even larger than what we anticipated. And we're also expecting the recovery to come sooner and therefore, we're going to raise rates even sooner than what we anticipated.

 

Now, that's their projection. But really, by and large, I think that is probably close to reality. And so, if you're really looking at mortgage-backed securities, you have to be weary of the fact that those values are going to deteriorate if inflation stays high and the Fed raises rates sooner than later.

 

All right, everyone, that's it from the Capital Markets Desk this this week. Take care and have a great day.

 

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