Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
I sat down at my desk to begin my day, and streaming across my screen was a market alert – “Dow rises 200 points after tame inflation data, Nasdaq jumps another 1%.” A few moments later, another breaking news headline passed in front of me – “U.S. spending on COVID-19 relief poised to hit $6T with the passage of Biden stimulus bill.” I quickly went to see where stocks were on the news, and much to my dismay (but not surprise), the DJIA was now up over 500 points. Yet another record-setting close for the records.
Is it just me, or does the average U.S. citizen not realize that the markets are on crack?! Since the start of the pandemic, the Fed has already provided an immeasurable amount of liquidity to keep the bond markets fluid. That has kept interest rates artificially low for the past year. Stimulus and Government intervention has kept the stock markets soaring, similar to how some people keep giving candy to children to keep them quiet. Once Biden signs the $1.9T bill into law, total spending by the U.S. will be almost a third of our nation’s GDP, which is the third-highest globally, according to new data published by CRFB. Only Japan and Sweden have spent more as a percentage of GDP.
Yes, I am worried because of inflation concerns, which are only now starting to get market attention because of the recent massive spike in U.S. Treasuries. While the markets are breathing a sigh of relief because of a “tame inflation” data report today, there is no question that the day of reckoning is very close. The Consumer Price Index (CPI), which measures inflation on the consumer level, rose by 0.4% in February. The year-over-year reading increased from 1.4% to 1.7%, as expected. A temporary sigh of relief, perhaps, but did we dodge a bullet? I think not. You see, the core reading of inflation is a culmination of the previous 12 months of data. I believe that once we get to May and June, the twelve-month history will show an elevated number, and that will undoubtedly cause rates to jump further. While I don’t think we will have hyperinflation, as some suggest, I do believe the spike will cause a panic in bonds and rates.
We have already seen mortgage rates increase anywhere from 10-20 basis points at more nimble lenders, to as high as 40-50 basis points at larger banks. Mortgage rates are almost a half-percent higher than they were at this time last year for those applying with “the big banks.” I have been receiving anxious calls from people who want to know if it’s “too late?” I have a simple response to this reoccurring query. My advice to clients, and in general, to everyone in life, is “stop living in the past.”
Simply put, when it comes to getting the best available mortgage rate, there are two options: The rate that is available today, or the rate that will happen in the future. Will the Fed step in once again to manipulate rates? Is Japan buying bonds, and what impact might that have? The question is, do you have the guidance of a competent advisor to help you decide whether you should move forward today, or wait, in anticipation of something better.
So what is the prediction about interest rates? You already saw it in my headline – it is the word “tense.” I believe, at present, there are tense market predictions about interest rates. I suspect we will have a lot of volatility over the next few months – so much so that I think home prices might be impacted as well. I have some very compelling thoughts on that, but that will have to wait for another article. My advice, as usual, is to maximize your most favorable financial options today – taking into consideration your short-term and long-term financial objectives. I expect that new mortgages that will be closed later this year will be back for a refinance in a year or two (when a possible recession hits.) The only question becomes how to navigate “in the present” to get the best available solutions for your needs in this environment.
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