Spring 2022 Update

By now you know the story. COVID-19 found its way into our world and prudence, uncertainty and an abundance of caution shut the entire global economy down. The central banks and governments of the world injected massive amounts of liquidity into the system to keep monies flowing to businesses in need and to the millions of people who had been laid off. Early in 2021 effective vaccines hit the stage which, combined with the multitude of people who had contracted the virus, began creating a form of herd immunity. Despite all of the uncertainty, American did what they do best - they spent. On homes, cars, furniture, stocks, and electronics. But not every country had access to vaccines or to the type of healthcare that enabled people to survive the virus. So, the countries of the world that produce our goods (Vietnam, South Korea, China, Indonesia, etc.) were running painfully short on labor and supplies. This meant prices were destined to creep higher.

Back in the US, business began hiring in droves and the unemployment rate dropped. Wage increased, stocks began to soar, and the eye of the US pocketbook diverted from durable goods to services (hotels, restaurants, flights, etc.). This raised the prices of those items as well.

So, we now find ourselves in a world with too much demand, still too little supply, a consumer flush with cash and an inflation rate that would make 1990 Mike Tyson look like a weakling. Enter the Federal Reserve and their dual mandate of price stability and “maximum employment”. I’m pretty sure their definition of maximum employment isn’t a 0% unemployment rate so you can toss that mandate aside for now and focus solely on the price stability aspect. The Fed will, one way or another, bring inflation to its knees. They will accomplish this by painfully raising interest rates to wherever they need go to slow things down and also by removing liquidity from the system through something called Quantitative Tightening. All the while they will keep their fingers, legs, toes, and arms crossed that they don’t throw the economy into a recession…good luck with that.

What do we do during all of this volatility? We focus on what is within our control and block out all of the noise that will distract you from maximizing the opportunity in front of us. You know the noise I am referring to, so I don’t need to give examples. You hear it from your peers, co-workers, and friends. But there is a very silver lining to all of this. We are expecting a nearly $2 Trillion dollar origination year in 2022…that’s a lot of cheese. Most of this will be purchase and the rest will be Cash-Out refinances. We’ll spend the next 6 - 12 months putting a ton of production into the 5% - 6% interest rate bucket. When the Fed slows the economy enough to bring us to the brink of recession and inflation gets back under control, you will be the recipient of $3 - $4 Trillion dollars worth of loans able to refinance into a 4% - 4.5% interest rate. We will have exited this boom bust cycle with a much healthier mortgage and real estate market. We’ll also finally be able to look back at the halcyon days of 2020 - 2021 with fondness but also a note of caution. Too much of anything is not a good thing. For now, we buckle up, contain our cost structure, be patient, focus solely on what is within your control, and be assured that times always do change. “Luck” favors the prepared.