The Fed Will Not Raise Rates But Bonds Ignores The News
This Breaking News Is About The Fed Will Not Raise Rates But Bonds Ignores The News
The Fed Will Not Raise Rates for the next two years until 2023 per the monetary policy statement they announced this past week. However, the bond market ignores the breaking good news from the Federal Reserve Board, which has a huge impact on mortgage rates. Mortgage rates skyrocketed in the past few weeks on fears of inflation. The 10-year U.S. Treasuries have skyrocketed which surged mortgage rates. Mortgage rates have increased 1.0% in the past few weeks on 30-year fixed mortgage rates. The Federal Reserve Board has been trying to convince the markets not to be concerned with inflation and higher interest rates. Mortgage rates have been surging since January 6th, 2021. The Federal Reserve Board has been purchasing $120 billion worth of bonds per month trying to keep rates and fears of inflation down. In this article, we will discuss and cover.
The Fed Will Not Raise Rates Until 2023 Due To Fears Of Inflation
The markets are fearful more than ever about inflation. The Federal Reserve Board has tried to downplay inflation since the beginning of the year. The Biden Administration’s $1.9 Trillion Coronavirus Stimulus Package was no help. This was because it was more of a wish list funding package for Democrats versus an economic stimulus package due to the COVID-19 pandemic. A combination of these things has skyrocketed yields on bonds, which reflect a direct impact on mortgage rates. Mortgage rates have surged over 1.0% percent in the past several weeks due to skyrocketing treasury yields. Inflation is not a problem and is in check with the norm of 1.7% year after year. However, the volatile treasuries and fear of inflation have a huge impact on mortgage rates. Mortgage-backed securities also referred to as MBS, are the tools that base the pricing on mortgage rates. Inflation is the main pricing engine of mortgage-backed securities. The higher the inflation rates, the higher the mortgage rates.
The Markets Do Not Look Good For Inflation And Mortgage Rates
However, markets are predicting higher inflation in the coming weeks and months due to data of skyrocketing prices in lumber, gas, oil, and other commodities. You can see the sudden, sharp price hikes in gas prices since Biden destroyed the gas industry with his executive orders. Natural gas prices have doubled due to Biden’s executive order which affected not just Texas residents but the whole country. Lumber prices have doubled, causing an increase of $30,000 an increase in new homes. Commodities have sharply increased or will increase since last spring. The Federal Reserve Board is trying to set off panic in the markets by admitting inflation may be volatile but will stabilize at a 2% year after year pace soon. No matter what the Feds are doing to downplay inflation and rates, the bond market is not buying it. After the news from the Federal Reserve Board, yields on bonds skyrocketed to the highest levels in over 12 months.
The News Of The Fed Will Not Raise Rates Did Not Affect Bond Prices
Despite the great news from the Federal Reserve Board, they will not increase interest rates for the next two years, the bond market still plunged driving yields to twelvemonth high surging mortgage rates. Inflation has a direct impact on bond pricing. The bond market is not buying the news of the Federal Reserve Board which affects bond prices. Four out of the seven Fed members are expecting higher rates next year. Seven members are expecting higher rates in 2023. This lack of unity decision by the seven members of the Federal Reserve Board is causing concern in the bond market. The announcement of the Fed continuing to purchase $120 billion dollars worth of bonds every month is good for the mortgage markets and keeps the mortgage rates stabilized and low. However, the bond market is not buying that this is good for the bond market and is cause for concern of inflation. Regardless, mortgage rates are still lows and homebuyers should not panic.
Impact Of The Housing Market Due To Increasing Mortgage Rates
Part of the reason why home prices have been skyrocketing for the past several years is due to low mortgage rates. However, mortgage rates were not the only factor driving home prices up. There was a historically low unemployment rate, the economy was stronger than ever, and consumer confidence levels were at historic highs. Inflation was under control at under 2% year after year. Home prices were appreciating at alarming rates in the past seven years. HUD and the FHFA have been increasing FHA and Conforming Loan Limits for the past five years. This was due to homebuyers being priced out of the market. The resurgence of non-QM loans also added more buying powers to the housing market. Waiting period requirements after bankruptcy and/or foreclosure are no longer required with non-QM loan programs. Self-employed borrowers can now qualify for a non-QM mortgage just with 12 months bank statement deposits. Federal income tax returns are not required on non-QM bank statement mortgages. Homebuyers should not get hurt with buying a home. Whether rates keep on going up or inflation is out of control, a homeowner should still be safe. Higher inflation means higher home values. However, having money in cash will hurt investors during high inflation periods.
