Mortgage Market Update - 07/28/23

Happy Friday, hope this finds everyone well and with something fun planned for the weekend.?Perhaps a party… A party where the drinks are flowing, and the good times are rolling. ?You’re spending money like it’s going out of style, and everything seems to be on discount.?Too good to be true, or too real to recognize??Since the housing crash of 2008 the US economy has been drinking its own Kool-Aid and living in fantasy land.??

CliffsNotes: Housing crashed and to artificially stimulate the economy the government began printing money, aka issuing bonds, and, for the first time in history, buying mortgage-backed securities.?These two action items brought the country out of a recession, but also got the nation drunk of stimulus funds.?A visual aid… As the government’s balance sheet of Treasuries and mortgage-backed securities increased, mortgage rates decreased (see below).?And this continued for 15 years!?Before 2008 you can see mortgage rates were cruising along between 6-7%.?Only after stimulus money was injected into the economy, after 2008, did mortgage rates drop to record low, after record low, and lowest yet:

Scaling in on mortgage rates from 2008 forward, we can clearly see that the historically stark rise in rates we’ve currently experienced is a direct result of kicking the can down the road.?Each previous time we attempted to get off the stimulus funds the economy bucked, administration caved, and we once again began drinking the Kool-Aid.?Rates went down as a result of an artificially stimulated economy… time and time again the government printed money to buy its own assets back and keep borrowing costs down. Rates were suppressed for over a decade:

Current news outlets focus so much on what’s happening “right now,” and when we’ll see the end of inflated rates.?The reality is this is the reality.?People have simply forgotten what it’s like to live in a world where money isn’t being created out of thin air.?Every time there’s a problem the government turns on the printing press and buys their way out of it.?Younger people have no idea mortgages rates historically land between 6-7%.?How bad has the printing spree been since 2008??This is way off topic of mortgages, but it does relate to the dollar and interest rates…

BRIC nations – Brazil, Russia, India, China, and South Africa – are meeting next month to further discuss a new international currency that’s once again backed by gold, https://fortune.com/2023/06/25/dollar-reserve-currency-brics-brazil-russia-india-china-south-africa/.?The dollar was once backed by gold, but in 1971 this policy was abandoned.?Why you ask… because the US government decided printing money would solve its problems much faster than actually dealing with its problems.?But dollars were backed by gold at the time, and, as such, the administration could not just print their way out of the problem.?Removing the gold standard allowed for instant access to newly created funds.?Full circle, this can has been kicked down the road for generations, we’re just now at a point where we quite literally can’t print more money.

Don’t worry about what the inflationary numbers are, or where the jobless claims land.?Rates will still elevated until the economy slows down for no other reason than we as a nation finally have to pay the piper.?We’ve been living on printed money for generations, which was exasperated during the housing crash and the pandemic.?It’s like using an equity line that has finally been maxed out.?Until we put equity back into our nation, by removing the artificial funds, rates aren’t going anywhere.

I truly hope this helps explain how we got to where we are and how we’re going to need to get ourselves out.?This is not my first economic cycle, and it won’t be my last.?It’s an honor to present this info and I welcome any questions at any time. ?