This a very detailed explanation of why will continue to see rates to rise in the near future- bottom line – to take advantage of the purchasing power of the lower rates – the time to buy is now!
Due to the Fed’s recent comments on raising interest rates and the speed at which they plan to run down or runoff their balance sheet it has accelerated the spike in interest rates. In the pic below, we are currently at 9 trillion (9 million x 1 million = 9 Trillion). You can tell that the Fed has been using quantitative easing (Buying bonds to create false demand) since 2008 during the bubble. They did this until 2014 and then maintained the balance sheet until 2020 when they went on a buying frenzy at the start of the pandemic to keep rates low.
The blue is treasuries, which accounts for 5.8 trillion of the 9 trillion the government has on the balance sheet. The red is MBS (Mortgage Backed Securities), which accounts for roughly 2.7 trillion. In May, the Fed plans to begin quantitative tightening (creating less demand by purchasing less bonds) to the tune of 60 billion wind down of treasuries and 35 billion in MBS (Mortgage Backed Securities). Assuming the Fed does this for 3 years as planned, the impact should be a reduction of the balance sheet from 9 trillion down to 6 trillion. This process will be long and who knows if they will be able to continue to do so, depending on how resilient the economy is, but we shall see. As long as they are reducing their balance sheet, you can expect upward pressure on rates. So if you have any clients asking when will rates will stop going up, this is one critical variable that will continue to push rates higher for the foreseeable future. The time to buy is now as their purchasing power is much stronger with these lower rates.
Article supplied by one of our preferred lenders – Residential Funding Consultants:
The Johnson Mortgage Team
Travis Johnson | NMLS 170196 | GRMA 28835
Partner | Senior Mortgage Loan Originator
Cell: (404) 786-5859