How Much Have Rates Risen Will They Fall

    Rates 1% Higher Than One Year Ago

    Last year at this time, the average conforming 30-year fixed-rate was about 2.7%, per Freddie Mac.

    Currently, the average conforming rate is over 3.7%.

    So, rates have risen a full 1% now over the last 12 months.

    Affect On Payments And Max Qualification

    In this blog, How Much Do Higher Rates Affect Payments, I pointed out that every 1/2% increase in rate results in a bit less than $30 per month in higher payments for every $100,000 borrowed.

    Hence, a 1% increase in rates results in about a $300 per month higher payment for a $500,000 loan (worst case; going from 2.7% to 3.7% actually results in a $273 higher payment – to be exact; higher rate comparisons, e.g. 3.7% to 4.7%, result in higher payment increases).

    $300 is real money but not the end of the world for many of our clients, with excellent salaries and dual incomes.

    The real issue for many of our clients is maximum qualification, as the increase in rates will reduce that number.

    Hence, all pre-approved homebuyers should check with their lenders to see how the rate increases have affected their maximum qualification.

    Will Rates Fall?

    Lyn Alden is one of the most respected and sought-after macro commentators on the planet right now.

    So, when she was interviewed recently on Stansberry’s YouTube channel – I took notice.

    Ms. Alden says that the Fed cannot continue to allow rates to rise for two reasons: (1) the economy is showing signs of slowing already, and rate increases will only exacerbate that problem; and (2) there is far too much government and private debt as a % of GDP, and our economy can’t begin to afford higher rates.

    Hence, Ms. Alden says the Fed will engage in sort of a “financial oppression,” where they hold rates artificially low – below the rate of inflation so bond investors will all have negative “real yields” (real yield = nominal yield – the rate of inflation).

    Ms. Alden also pointed out how bond investors respond to inflation reports (like I mentioned in yesterday’s blog and like what actually happened today), but that inflation should wane as supply chains untangle and government stimulus wears off (the major cause of today’s inflation per Ms. Alden).

    So, between waning inflation and financial oppression, rates could very well come down again – especially if there is a “black swan event” like a stock market crash, a bad recession or a war. I highly recommend watching the full interview that I link to above, as it is very educational (and less than 10 minutes at 2x speed).

    Jay Voorhees
    Founder/Broker | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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