Why Mortgage Rates are at an all time HIGH! + Investment tips

Why are mortgage rates at an all time high? 5 reasonsMortgage rates are linked to the 10y treasury bonds.Also because future inflation is so uncertain, banks are increasing the spread just in case anything happens, just like it happened back in 2008. If a recession is coming, Then REIT price will suffer a lot.

No More Quantitative Easing (QE). When the Fed is not buying mortgage-backed securities, there is much less demand for mortgages overall and that has a tendency to push yields way higher. This argument is offset though by the fact that the supply of mortgages has also dropped off by about 2/3, as refinances have largely dried up and there are far fewer purchases too. So, yes, there is way less demand with QE out of the picture, but there is far less supply too. But, for those readers who are convinced that the lack of QE is the main reason why mortgage rates are so much higher now, they should be encouraged by all the predictions by the likes of?Jeff Snider?and?Alf Peccatiello?that QE will return in the near future.

Fear of Early Payoffs! This is the good news!?Investors are paying less for mortgages right now (and demanding higher rates) because they believe that today’s mortgages will refinance/pay off relatively soon – which means that many investors expect rates to fall sharply in the near future. 10 Year Treasuries do not pay off early like mortgages, and that is part of the reason why they can command premiums or lower yields.

Mortgages Are Not “Pristine Collateral.”?This is a point?Jeff Snider?makes often. The reason the 10 Year Treasury Yields (and all other Treasury bond maturities) are so low is because they are backed by the full faith and credit of the United States, and that is what makes them “pristine collateral.” And that is something banks desperately need to do business on a day-to-day basis to operate (so they can borrow money and access liquidity when they need it), per Mr. Snider. This desperation for pristine collateral is in fact why the demand for Treasury bonds and bills remains so high (and why yields remain surprisingly low), despite all the troubles the U.S. is facing.

Competition With Short-Term Treasuries.?Because the yield curve is inverted with much higher short-term rates than normal, many investors are buying short-term government T-bills (with maturities of one year or less) instead of Mortgage-Backed Securities. This reduction in demand for mortgages pushes up yields or rates for mortgages.

Conclusion, or the really, really good news: Not only will rates likely fall, but the spread between Treasury Yields and mortgages will likely tighten up again too – meaning that rates will just get that much lower

So Investment-wise:

Technology and Innovation: Lower interest rates can be beneficial for technology companies that often rely on financing for research, development, and expansion. Additionally, in a low-interest-rate environment, investors may favor growth stocks, including those in the tech sector.

Consumer Goods and Services: Lower interest rates can boost consumer spending by reducing the cost of borrowing for big-ticket items like homes and cars. This can positively impact industries related to consumer goods and services.

Healthcare: Healthcare is often considered a defensive sector. Lower interest rates might not have a direct impact, but the stability they provide can be attractive to investors seeking less volatile assets.

Energy: The energy sector can be influenced by global economic conditions and geopolitical events. Economic slowdowns or uncertainties, such as trade tensions with China, could impact demand for energy commodities.

Geopolitical Factors, Especially China: China's economic policies can have widespread effects. For instance, if China implements stimulus measures, it could boost global commodity prices. On the other hand, trade tensions or significant shifts in China's economic policies may create uncertainty in financial markets.

Emerging Markets: Lower interest rates in the U.S. can lead to capital flows into emerging markets in search of higher yields. However, geopolitical factors, such as trade tensions, can create volatility in these markets.

Currencies: Changes in interest rates, coupled with geopolitical events, can impact currency markets. For instance, if the U.S. dollar weakens due to lower rates, it can benefit U.S. exporters but might pose challenges for other countries.

Real Estate: Beyond bonds, lower interest rates can impact the real estate sector, not just in terms of homebuying but also in commercial real estate. Investors may seek real estate as an alternative investment in a low-interest-rate environment.

Considering these factors collectively, it's crucial for investors to stay informed about global economic trends, geopolitical developments, and central bank policies. Diversification and a dynamic approach to investment strategies can help navigate the complexities of the market.