so the FED is lowering rates but mortgage rates have gone up a lot of people don't understand why and what's going on so we wanted to break that down
first the FED raised interest rates to try to combat inflation because raising interest rates slows down the flow of money because it increased the cost of money that means people borrow less and debt is money it's actually one of the main ways that the FED inserts money into the economy by lowering the cost more people borrow and that borrowing creates more spending and the economy grows when the economy grows we have inflation or the rising in price in Goods
How Federal Reserve Interest Rates Impact Inflation and the Economy
Fed rate changes directly influence borrowing, spending, and inflation levels.
now inflation sounds like a scary word because when it's high it is scary in fact it can destroy an economy like we have seen in many economies but normal inflation at 2 to 3% is actually a good thing in fact it's necessary we want things to go up in price like our salary we also want things like the cost of debt to go down or the impact of that debt to go down in relative terms to the cost of goods and services
the FED lowered interest rates to put money into the economy because of of Co they were worried that the economy would shut down and this worked really well the economy blew up that lowered the value of money and made everybody want to invest and spend their money that's what they do the problem was it was completely overboard and it sent inflation through the roof when the money supply gets so big that there's more money chasing goods and services than there is goods and services the price of those goods and services Skyrocket this is bad nobody likes it when their eggs or bread goes up 30% because they're not getting a 30% increase in their salary
so the FED needs to slow that down by doing the opposite of what they did during covid raise the cost of money through debt and that will slow the economy down not as much debt goes out people stop spending as much and then there's less demand for those goods and services so the rate of inflation goes down meaning the prices don't necessarily go down that's deflation but the rate at which they go up that does slow down and they achieved that they got it down to just under 3% inflation rate or that growth rate
Why Inflation Surged After COVID-Era Rate Cuts
Low rates during COVID boosted the economy but triggered high inflation.
so they came out and said hey we think we can start to lower the cost of money through interest rates and the Federal Reserve is going to lower interest rates because then they start to get worried about the economy slowing down too much a Goldilocks event they want it to be just right they don't want there to be too much inflation but they definitely don't want deflation that causes depressions when prices of assets and goods and services tank that's like when your house was worth $200,000 but then it's only worth $100,000 not good
so they lowered interest rates and everyone cheered that means debts going to get cheaper and we're all going to be able to buy more but that didn't happen instead the 30-year mortgage went up
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first of all there's a big turning point in October we already know that fed lowered interest rates and they're going to continue but the 30-year mortgage started to go up it's because of how we get our 30-year mortgages you see in order to get the debt into the market we have to sell bonds now these are sold from the treasury and we have a 30-year treasury now if an investor buys a 30-year treasury they are going to get a 4.6% return
How Treasury Yields Drive Mortgage Rates Higher
Mortgage rates follow bond market trends, not just Fed decisions.
When everyone's worried in order to get this debt you have buyers and you have the government selling now this is the key debt is a Marketplace and when everyone is really worried about the economy they rush to find safe assets that will pay them a return that way their money isn't worth less because of inflation people run and they buy things like the 30-year treasury now when you have more demand and you actually have to pay them less so rates go down because you have more buyers then you have treasury bonds so you don't have to pay as much CU everybody wants them
it's the opposite though if everyone thinks that the economy is going to Boom so if you're an investor and you're going to buy a treasury that pays you 4% that's because you think that this is safe and all the other assets like stocks bonds your real estate all of that everything else won't perform as well so you're going to buy this cuz it's the safest best option for this return but if I think that the stock market's going to go up and if I think that we're going to have rise and increase in inflation and businesses are going to grow and the economy is going to do good I'm going to sell these and I'm going to buy other assets essentially we have to pay investors more so they buy the asset
Why Mortgage Rates Rise Even When the Fed Cuts Rates
Mortgage rates are driven by investor behavior, not directly by Fed cuts.
and this is what's happening you see right here in September once we had a new Administration we saw a change in the flow of money meaning people expected things like inflation and a pro business environment deregulation so the money started to move into assets that would benefit from that meaning we expect growth that's what investors were saying and they started to buy assets that would produce a good return in that environment and they also thought that these won't do as good so they left them and that's why we had interest rates start to rise because it is affected by supply and demand it is a normal marketplace
now normally we see this in the short term as money adjusts and then over time as the FED keeps lowering interest rates we generally will see these follow the treasury yields will be represented as people are buying and selling but they are not a direct reflection of the fed and lowering interest rates because this happens in a Marketplace but your 30-year mortgage can actually go up
so are they going to stay high are they going to go higher well the truth is we don't really know but generally speaking this is most likely an after elction bump we saw this with all sorts of assets remember as yields went up this means investors were not wanting to buy but guess what they did want to buy stock market and the stock market went up in fact it roared this too is generally a reaction to the shift of mass money in the economy normally like we've seen in the last few days the stock market starts to cool off and it starts to come back down now it did not go back down but it still gave off some of those gains and cooled down a little
Investor Behavior and Its Impact on Mortgage Rate Trends
Shifts in investor sentiment play a major role in mortgage rate fluctuations.
this is generally what we see and we' expect to see that this is probably a high in a TR and as things adjust we will see 30-year mortgages lower especially because when we have change we have un certainty so investors are celebrating a pro business environment and buying up stocks and other assets but they're always going to get scared about something and there's a lot of change going on in the world which means we will have events and things that happen that make investors want to flee back to safety as this happens we will find an equilibrium in the marketplace but in the short term it can seem to be a little volatile especially when there is large political change and investors are digesting all of that information to try to understand where to put their money for the future
