It’s Time To Challenge The Fed

From todays Wall Street Journal , “Though some still predict mortgages will be cheaper by year’s end, much depends on the Federal Reserve’s decision at its September meeting. The Fed doesn’t set mortgage rates directly, but a further increase to interest rates could in turn push mortgage rates even higher.”

The image on top is the history of the Fed Funds rate going back to the 1950’s. What it tells me is simple, the Fed always over corrects when engaging in QT. Each of the vertical grey lines represents one of ten recessions since 1950, and preceding each recession the Fed was tightening followed by subsequent rate cuts. Why? Because the Fed can’t see when they are overshooting until it’s too late.

We are there again, welcome back to Groundhog Day.

Let’s call this for what it is - the Fed overly stoked inflation with it’s massive QE in 2020 and now threatens the American dream of homeownership as it tries to fix it’s overcorrection. Yes, Covid supply chain shortages and congressional actions like the Cares Act contributed as well. But make no mistake about it, with the real estate sector contributing about 40bps to the total GDP, the sub 3% mortgage rates produced the largest purchase and refinance years in US History. My view is that it was the Fed’s excessive QE that really drove the inflation path because housing is such a huge influence on GDP.

But the Feds current actions are bordering on recklessness. Inflation is rapidly declining and yet we risk another increase in September which could push the entire yield curve up even further. This could threaten banks with even more basis risk, raise consumer costs even more on everything from credit cars to auto loans, but more importantly it would clearly be a direct shot at Americas potential homebuyers, especially first time homebuyers.?

If you care about protecting the ‘American Dream’ of homeownership - the time is now to say enough! Inflation at 3.2% as recently released is far less a risk than crushing families with outrageous cost increases.?This is most important when you already can see the trend of inflation clearly declining rapidly from its highs in 2022.

The difference between a 4% mortgage and a 7% mortgage on only a $300,000 loan is close to $600. It takes the P&I from about $1,400 to almost $2,000.?This is a shock to the average family just trying to find an affordable place to live especially with inventory so tight.

Our advocates and leaders need to say ENOUGH! A long winter is coming - let the seasonal change finish the economic slow down. Stop the rate hikes.

Ask your advocates to start talking about this. Whether trade groups at the state or federal level, members of congress, or consumer advocacy organizations, or simply using your social media posts, a collective increase in the noise level could help. This has really gotten out of hand.