Factoid #1: If the spread between mortgage rates and the 10-Year Treasury were as high now as it was in 2023, the average mortgage rate would be almost 7.7%. Last year on this date, average rate was about 6.9%. So, yeah, today’s average of 6.56% is not so bad…
Factoid #2: Elon’s $1.2 trillion net worth would only have been worth a meager $930 billion six years ago. This is a reminder that we’ve seen almost 30% inflation since the COVID money-printers were turned on, and that we should not be that impressed with Elon – who’s clearly just riding a wave of inflation (except for those rockets, satellites, neuro links, electric cars, electric trucks, giant battery packs, solar units, and boring machines, as well as universal internet service, FSD software, a mildly prominent social media company, and xAI).
Why Didn’t the Peace Deal Bring Down Rates Even More?
The Iran peace deal was announced yesterday – with much fanfare and cynical skepticism. Rates fell today, but not as much as many of us had hoped – why?
- Rates had already fallen. Mortgage rates peaked at 6.75% on May 19. They fell and then rose again to 6.68% last week, but started to fall again last week – in anticipation of the peace deal. The average rate today is 6.56%.
- Analysts remain skeptical. Oil (WTI) has fallen to $80 per barrel from a high of $113 (a good thing), but the bond market remains skeptical that this “peace” will last. We will know for sure next week after the peace deal is officially signed – if/when we see oil tankers freely navigating the Strait of Hormuz. If that happens, expect rates to fall further.
- The focus is the Fed. The Fed meets this week for the first time since Kevin Warsh took over – and the market is on edge waiting to see what he has to say. Because Mr. Warsh is more “hawkish” (anti-inflationary), some analysts expected him to raise rates – or to least put “rate cut” talks to bed – to fend off inflation concerns. Mr. Warsh is less likely to raise rates or be excessively hawkish now that a peace deal is in the works.
- Other factors outweigh the impact of the peace deal. Yes, oil prices have plummeted. But they remain significantly above pre-war levels, and higher energy prices have already worked their way into the cost of many other goods. We will also likely still see shortages of many goods transported through the Persian Gulf, and it will take some time for lower oil prices to be reflected in our inflation figures. In addition, the U.S. labor market and the economy overall (how fast it is growing) still weigh heavily on rates, as always.
