Million Dollar Question - Buy or Wait? 2022 Edition (Spring, Howe: salary, price)

[Wittgenstein's Ghost]

Originally Posted by Xalistiq

Another 75 basis point hike is virtually assured in July, as is an additional 50 point hike in September, which amounts to yet another cumulative 125 points.

Assuming current mortgage rates follow the same trend of increases concurrent with Fed hikes, mortgage rates should be at minimum +30% higher than they are today by end of year.

If we average out the two rates for today provided above, we get 6.075%. A +40% increase would mean mortgage rates go up another 2.43%, for a total of 8.5% by December 2022.

And a +30% increase would mean mortgage rates go up another 1.82%, for a total of roughly 7.9% by December 2022.

My prediction was that 30 year interest rates will be 8% by end of year.

Explain to me how this logic is foolish?

It's foolish because mortgage rates move with treasury yields, and treasury yields look forward. They move in response to what the Fed is expected to do, not what the Fed has already done. If it's assumed that there will be 75 + 50 in July and September, those are already factored in.

By the time the Fed hiked for the first time on March 16, 30 year fixed had already moved from 3.5 to 4.16%. Treasury yields don't wait until the Fed has acted before moving.

[Kenro911]

Originally Posted by Xalistiq

While I agree our financial system is completely corrupt (as is the Federal Reserve), I don’t see how more inflation-causing stimulus is a viable option to prevent a housing correction.

The next downturn is going to be particularly painful, because unlike the Great Financial Crisis and COVID-19 response, there will be no stimulative government intervention.

Why? Because there can’t be, unless the goal is to completely debase and destroy the dollars buying power. The reality is that 2% target inflation isn’t coming back anytime soon, or ever at all.

Severe inflation is unfortunately here to stay, will continue unabated, and even multiple “aggressive” hikes won’t do much at this point.

The Fed has lost all credibility, and Powell’s contention that fast rising rates and quantitative tightening won’t pummel an economy that has been sustained on easy money since 2008, is yet another example of his incompetence and penchant for bold faced lies, i.e., “transitory inflation”.

There will be no soft landing.

They will find a way to 'stimulus' it somehow, we'll hear the whole stories about 'too big to fail' 'think of the children'.

The whole covid fiasco was not to save your average 'joe' is to make companies like Amazon richer than ever in history. They sucked out all money from small/medium business and families into top 1% again.

Everyone ate it up because they got their $1200 check which were literally crumbs. Now your average Joe is not only paying that $1200 back but magnitudes higher on top of it through inflation so that Big boys can triple/quadruple their income.

If things start to really go down, they will find another way to play everyone. Its a national sport, even J Powell was dumping liquidity into assets he personally owned. Its an American favorite past time, rip the middle class to shreds. People are not generally bright, I have so many friends ecstatic and over the moon that their houses have gone up in value so much.

One was thrilled he sold his 400K home for 700K which he bought 3 years ago. They moved into a home that they purchased for 1.1 million. He was very confused when I explained to him that the house he bought was worth 650K before Covid. So by the time he paid capital gains and upgraded, he actually lost money compared to if market did not go crazy. But nope, he's over the moon.

[Xalistiq]

Originally Posted by Wittgenstein's Ghost

It's foolish because mortgage rates move with treasury yields, and treasury yields look forward. They move in response to what the Fed is expected to do, not what the Fed has already done. If it's assumed that there will be 75 + 50 in July and September, those are already factored in.

By the time the Fed hiked for the first time on March 16, 30 year fixed had already moved from 3.5 to 4.16%. Treasury yields don't wait until the Fed has acted before moving.

In March, after the first .25% hike, the Fed strongly signaled that it was just going to continue with multiple .25% hikes. The most recent hike was also largely expected to be .5%, until the very last minute when the Wall Street Journal leaked the Fed’s intention to hike by .75%.

I get that treasury yields are forward-looking. My argument is that the level of inflation right now is unprecedented in recent history, as is the Fed’s response (150 basis points over three months). Relying on historical trends of how treasury yields behave is a moot point in this current economic environment.

Target inflation will not be anywhere close to 2% by September/October. This will necessitate more hikes/tightening, if the Fed holds true to its commitment to bring inflation down.

My assertion is that treasury yields may come to anticipate more aggressive Fed response as inflation proves difficult to tame.

Remember back in early 2022, all of the so-called “experts” saying rates would be 4.5% to 5% by the end of the year?

Hardly anyone expected mortgage rates to rise this fast, and even I was chastised on these forums back in February/March for merely suggesting 6% by end of 2022.

In light of all of this, I do not think projecting 8% is unreasonable or foolish.

[usc619]

It's over


https://www.youtube.com/watch?v=aVbn...l=OrlandoMiner


https://www.cnn.com/2022/06/22/inves...ges/index.html

[NP78]

Originally Posted by Kenro911

They will find a way to 'stimulus' it somehow, we'll hear the whole stories about 'too big to fail' 'think of the children'.

The whole covid fiasco was not to save your average 'joe' is to make companies like Amazon richer than ever in history. They sucked out all money from small/medium business and families into top 1% again.

Everyone ate it up because they got their $1200 check which were literally crumbs. Now your average Joe is not only paying that $1200 back but magnitudes higher on top of it through inflation so that Big boys can triple/quadruple their income.

If things start to really go down, they will find another way to play everyone. Its a national sport, even J Powell was dumping liquidity into assets he personally owned. Its an American favorite past time, rip the middle class to shreds. People are not generally bright, I have so many friends ecstatic and over the moon that their houses have gone up in value so much.

One was thrilled he sold his 400K home for 700K which he bought 3 years ago. They moved into a home that they purchased for 1.1 million. He was very confused when I explained to him that the house he bought was worth 650K before Covid. So by the time he paid capital gains and upgraded, he actually lost money compared to if market did not go crazy. But nope, he's over the moon.

Only thing I would disagree with is small and medium sized businesses. The PPP loans were a tremendous giveaway to small-mid sized business owners, many of whom were already quite wealthy relative to the average American. It was an absolute quagmire of fraud and rich people getting richer.

[Kenro911]

Originally Posted by usc619

It's over


https://www.youtube.com/watch?v=aVbn...l=OrlandoMiner


https://www.cnn.com/2022/06/22/inves...ges/index.html

The dude is talking about homes being over-priced by 50-100k. What is he on about, north DFW homes selling for 50-75% gain over 2019 and people throwing extra 10% of asking price on top which alone is way over 50K.

[Xalistiq]

Originally Posted by NP78

Only thing I would disagree with is small and medium sized businesses. The PPP loans were a tremendous giveaway to small-mid sized business owners, many of whom were already quite wealthy relative to the average American. It was an absolute quagmire of fraud and rich people getting richer.

Agreed.

And we will be paying for all that free money for years into the future in the form of high inflation.

The fact that PPP and stimulus mostly benefited financial institutions, the wealthy, and SMB owners, is one reason why I’ve been so adamant about a major housing correction.

That money didn’t largely trickle down to the middle or lower classes. Real wages have actually declined since 2020 and yet homes are up in value +30%, +40%, +50% or more since 2020. Not sustainable.

[numbersguy100]

Originally Posted by Xalistiq

We’ll see.

In early February, the average 30-year fixed rate stood at around 3.83%: https://www.investopedia.com/today-s...s-hold-5219394

In March, May, and June, the Fed raised the federal funds effective rate by 25, 50, and 75 basis points, respectively.

As of today, June 22, the 30-year fixed rate is between 6.01% and 6.14%, according to Bank Rate and Investopedia, respectively:

https://www.bankrate.com/mortgages/t...-june-21-2022/
https://www.investopedia.com/mortgage-rates-5094943

So since the Fed began hiking the funds rate in March, mortgage rates have gone up nearly +40%, corresponding to a cumulative total 150 basis points of increases.

Another 75 basis point hike is virtually assured in July, as is an additional 50 point hike in September, which amounts to yet another cumulative 125 points.

Assuming current mortgage rates follow the same trend of increases concurrent with Fed hikes, mortgage rates should be at minimum +30% higher than they are today by end of year.

If we average out the two rates for today provided above, we get 6.075%. A +40% increase would mean mortgage rates go up another 2.43%, for a total of 8.5% by December 2022.

And a +30% increase would mean mortgage rates go up another 1.82%, for a total of roughly 7.9% by December 2022.

My prediction was that 30 year interest rates will be 8% by end of year.

Explain to me how this logic is foolish?

The Fed funds rate is going up. That much we know. I personally believe the Fed will feel the need to raise rates by more than it is signaling to the market to bring inflation under control.

All that to say, if the Fed funds rate goes up faster than the market is expecting, mortgage rates probably climb higher, and maybe they do end the year at or over 8%. If Fed funds rate follows the path the Fed has guided the market to? Maybe they increase incrementally but not meaningfully. It's foolish to say that mortgage rates HAVE to rise if Fed continues to increase rates because they don't HAVE to do that at all.

[TurtleCreek80]

Originally Posted by NP78

Only thing I would disagree with is small and medium sized businesses. The PPP loans were a tremendous giveaway to small-mid sized business owners, many of whom were already quite wealthy relative to the average American. It was an absolute quagmire of fraud and rich people getting richer.

That is true of a portion of PPP. However, they also helped MANY, MANY small businesses - mine included - continue to pay our employees while our “non essential” businesses were suddenly ordered to close and revenue suddenly fell by 80%+ in Spring 2020.

PPP was an imperfect program but it did the job of quickly getting money into the hands of businesses that really needed it. It was much better administered than the SBA’s EIDL program which became so overly red-taped that many deserving and qualified businesses were denied LOANS (not grants) because of ticky, tacky stuff like 4505-T forms saying “Road” not “Rd” being denied for “unverifiable / potentially fraudulent address”.

[Wittgenstein's Ghost]

Originally Posted by Xalistiq

In March, after the first .25% hike, the Fed strongly signaled that it was just going to continue with multiple .25% hikes. The most recent hike was also largely expected to be .5%, until the very last minute when the Wall Street Journal leaked the Fed’s intention to hike by .75%.

I get that treasury yields are forward-looking. My argument is that the level of inflation right now is unprecedented in recent history, as is the Fed’s response (150 basis points over three months). Relying on historical trends of how treasury yields behave is a moot point in this current economic environment.

Target inflation will not be anywhere close to 2% by September/October. This will necessitate more hikes/tightening, if the Fed holds true to its commitment to bring inflation down.

My assertion is that treasury yields may come to anticipate more aggressive Fed response as inflation proves difficult to tame.

Remember back in early 2022, all of the so-called “experts” saying rates would be 4.5% to 5% by the end of the year?

Hardly anyone expected mortgage rates to rise this fast, and even I was chastised on these forums back in February/March for merely suggesting 6% by end of 2022.

In light of all of this, I do not think projecting 8% is unreasonable or foolish.

You're moving around the argument here. Your previous post said that we know mortgage rates are going higher because we know the Fed already has future rate hikes planned. But the bond market already knows about those. Maybe the Fed will need to hike more than the bond market is expecting, but that's a totally different argument.

Just realize that you're betting on something markets aren't betting on right now. Maybe it will happen, maybe it won't.....but we can't know it's going to happen simply because the Fed has a hike in July and September planned.