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1. What the Hell is Happening with Interest Rates? 🧵

2. Follow MF Lending on Twitter 🐥

By the way, this article on Opt-Out Prescreen (save your clients 100+ calls) is the most clicked link in this newsletter, you should check it out if you are interested.

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Nuwave Rates Today 📈

What the Hell is Happening with Rates? 🧵

In the last two weeks, rates have risen to the highest levels since late 2021 - all in a matter of two weeks.

Why?

On Thursday, 2-, 10- and 30-year yields climbed to their highest levels after a pair of Fed officials left the door open to a June interest rate rise.

Markets began pricing in a 43.8% chance of a quarter percent hike in June.

That is an EXTREME change from the expectations the market had after the FED meeting in May.

When the expectations change this drastically, mortgage companies aggressively price in the new expectations into the mortgage rates - they do not wait to see what will actually happen.

Powell Meeting

On Friday, FED Chairman Jerome Powell and former Chairman Ben Bernanke met to discuss monetary policy -

If you were not watching the riveting live stream with popcorn in hand, here is the second reason why rates are rising:

Powell said multiple times in the meeting that the FED intends to hold rates above 500bps (where they are today) until inflation comes down to their 2% goal.

That means they have absolutely no intention of dropping rates until at least November (and maybe even December).

Not all doom and gloom…

New research was presented at the FED conference last week suggesting that there is no evidence we are at the end of an area of very low “natural interest rates”.

Also known as “r-star” rates - it represents the level of interest rate that neither stimulates nor slows the economy. It results in stable employment and inflation rates.

While we have seen our economy whipsawed from historically low rates during the pandemic, to extremely high in an 18-month period, this paper proposes that the “r-star” could land interest rates at the levels we saw pre-pandemic (between 3.5%-3.75%).

Other research shows that when the FED begins cutting (expected Nov/Dec of this year) they will begin cutting rates aggressively. We could see rates back down to under 4.5% by mid-next year.

How to communicate this to clients this week

If you have clients preapproved and out looking for a home or on the fence:

1. Have them review/update their preapproval - rates rose more than .5% in a week. If they were approved, they have expectations for rates and payments in their head that may not be a reality.

2. Prepare your clients to pay discount points OR ask for concessions - I would prepare your clients to bring additional cash (1%) if they want to keep their payments at a similar level to their expectations. Alternatively, you could ask for concessions of 1-2% from the seller to offset this rapid rise in interest rates. When rates are this high, discount points go much further.

3. Remind them this could give them more negotiating power - there seems to be a magic dam at 6.5% for buyers. For the clients who are still out looking - they may see less competition for the same homes. Meaning, they can get the home without going over ask, or even get concessions from the seller.

TLDR - Rates will be higher for longer, expectations have moved to Nov/Dec of this year before a rate cut. But, when rates start coming down, they will do so rapidly.

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1. Live Tweeting Back-House Build - I am in the process of building out a DADU AirBNB renovating an existing garage - follow along for updates

2. Major market changes from the day

3. MF Lending Deep Dives - further in-depth analysis on items you see here in the newsletter

The Cul-de-Sac

Thanks for reading - that is all we have for today 😎

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— Michael F DiLucchio