{"id":10327,"date":"2023-12-24T05:36:54","date_gmt":"2023-12-24T05:36:54","guid":{"rendered":"https:\/\/imsfund.com\/?p=10327"},"modified":"2023-12-24T05:36:54","modified_gmt":"2023-12-24T05:36:54","slug":"are-we-experiencing-transitory-mortgage-rates-what-does-that-mean-for-rates","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/12\/24\/are-we-experiencing-transitory-mortgage-rates-what-does-that-mean-for-rates\/","title":{"rendered":"Are We Experiencing &#8220;Transitory Mortgage Rates&#8221;? What Does That Mean For Rates?"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button x-on:click=\"open = !open\" class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<p class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/p>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">In March 2021, Federal Reserve Chairman Jerome Powell said, \u201c[T]hese one-time increases in prices are likely to have only transient effects on inflation.\u201d From then on, \u201c<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.forbes.com\/advisor\/investing\/transitory-inflation\/\" target=\"_blank\" rel=\"nofollow noopener\"><span data-preserver-spaces=\"true\">transitory inflation<\/span><\/a><span data-preserver-spaces=\"true\">\u201d became the phrase of the year in economics, with high hopes that once the initial supply chain shocks and government stimulus after the onset of the pandemic wore off, inflation would return to its regular scheduled programming and maybe even deflate.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">It turns out, however, that trillions of new dollars in stimulus and slashing interest rates to near-zero for a prolonged period of time did not make inflation \u201ctransitory.\u201d Instead, it became a new chapter for the economy.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But in this article, I want to talk about what I\u2019m calling \u201ctransitory mortgage rates.\u201d<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Are \u201cTransitory Mortgage Rates\u201d?<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Transitory inflation is defined as an inflation rate that moves above its typical rate for a short period, with the expectation that the rate will revert back to its typical rate. It\u2019s the opposite of persistent inflation, which is what we\u2019ve experienced over the last two years and forced the Fed to raise interest rates in the manner that they have.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Mortgage rates, while highly influenced by the federal funds rate, are subject to their own fluctuations and usually follow the trajectory of bond yields. With that in mind, how could they be in a transient state right now?<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Given that the federal funds rate has remained at 5.25-5.5% for the last few months, and the average 30-year mortgage rate has\u00a0<\/span><em><span data-preserver-spaces=\"true\">decreased\u00a0<\/span><\/em><span data-preserver-spaces=\"true\">by over 1% since October. By the transitory definition, mortgage rates are reverting to their base naturally after a period of higher rates. Add in that the higher-than-normal spread between bond yields and mortgage rates has also started to decline, and there might be some runway for mortgage rates to keep decreasing even without the Fed cutting rates.<\/span><\/p>\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1220\" height=\"1020\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/12\/spread.jpeg?twic=v1\/cover=1220:1020\/max=1000\" alt=\"spread between mortgage rates and bond yields\" class=\"wp-image-163655\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/12\/spread.jpeg?twic=v1\/cover=1220:1020\/resize=1220\/max=1000 1220w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/12\/spread.jpeg?twic=v1\/cover=1220:1020\/resize=300\/max=1000 300w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/12\/spread.jpeg?twic=v1\/cover=1220:1020\/resize=1024\/max=1000 1024w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/12\/spread.jpeg?twic=v1\/cover=1220:1020\/resize=768\/max=1000 768w, \" sizes=\"auto, (max-width: 1220px) 100vw, 1220px\" title=\"Are We Experiencing &quot;Transitory Mortgage Rates&quot;? What Does That Mean For Rates? 2\"\/><figcaption class=\"wp-element-caption\"><em><a href=\"https:\/\/www.brookings.edu\/articles\/high-mortgage-rates-are-probably-here-for-a-while\/\" data-type=\"link\" data-id=\"https:\/\/www.brookings.edu\/articles\/high-mortgage-rates-are-probably-here-for-a-while\/\" target=\"_blank\" rel=\"nofollow noopener\">Brookings<\/a><\/em><\/figcaption><\/figure>\n<p><span data-preserver-spaces=\"true\">By how much, though? 30-year mortgage rates tend to be within 1-2% higher than 10-year Treasury bills. Today, the spread is around 2.7%. While there are a number of factors that influence the spread, if we\u2019re looking at this from the most basic of lenses, it could mean that there\u2019s still room for mortgage rates to fall anywhere from 0.7% to 1.7%\u00a0<\/span><em><span data-preserver-spaces=\"true\">without<\/span><\/em><span data-preserver-spaces=\"true\">\u00a0lowering the federal funds rate. If that were the case, then the current 30-year mortgage rate average of 6.67% could drop to as low as 5%.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">If we look at the decade leading up to 2020 and the pandemic, the average 30-year mortgage rate ranged between 3-5%. If mortgage rates were to continue falling and revert back to their typical spread, then it would effectively be a \u201ctransitory mortgage rate.\u201d A rate that was higher than its base rate for a short period until it naturally reverted to its base.\u00a0<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Does This Change If The Fed Will Lower Rates?<\/span><\/h2>\n<p>L<span data-preserver-spaces=\"true\">ow interest rates are great for expansion, but economies run the risk of overheating with prolonged easy money policies. Inflation increased at a ridiculously high rate for the greater part of two years. We saw home prices reach record highs, gas prices rise, costs in grocery stores rise, and more.<\/span> In short, whether mortgage rates drop organically or not, it doesn\u2019t change the Fed\u2019s decision-making. They\u2019re looking at inflation and unemployment.<\/p>\n<p><span data-preserver-spaces=\"true\">While the Fed was late to the party in raising the federal funds rate, the hikes were necessary to defeat inflation. The\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.bea.gov\/news\/2023\/personal-income-and-outlays-november-2023\" target=\"_blank\" rel=\"nofollow noopener\"><span data-preserver-spaces=\"true\">latest inflation data<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0shows that personal consumption expenditures (PCE) dropped to 2.6% in November, which is great progress, but would a premature rate cut make that number\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.reuters.com\/markets\/is-big-ease-coming-2024-or-will-rate-cut-hopes-get-dashed-2023-12-21\/\" target=\"_blank\" rel=\"nofollow noopener\"><span data-preserver-spaces=\"true\">tick back up<\/span><\/a><span data-preserver-spaces=\"true\">?\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The Fed has to make a decision in 2024. They either let rates stay steady and risk a slowdown that\u2019s more painful than intended. Or lower rates and risk overheating the inflation rate all over again. The latter is easier to stomach but certainly a concern. The Fed would be happy to see the mortgage rates fall on their own, but it\u2019s also important to keep in mind that the sole purpose of the Fed is to control inflation and unemployment, not the cost of housing.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">For us, lower mortgage rates and low inflation are a good combination. If the Fed can hold off from lowering rates and keep inflation controlled while we continue to see a decline in mortgage rates, then there\u2019s not much to complain about. We\u2019ll just have to see what happens.<\/span><\/p>\n<div class=\"wp-block-group has-slate-200-background-color has-background is-layout-constrained wp-block-group-is-layout-constrained\">\n<div class=\"wp-block-group__inner-container\">\n<div class=\"wp-block-group__inner-container\">\n<h2 class=\"wp-block-heading has-text-align-center has-theme-slate-dark-color has-text-color\">More from BiggerPockets: 2024 State of Real Estate Investing Report<\/h2>\n<div class=\"wp-block-media-text has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-top\" style=\"grid-template-columns:auto 43%\">\n<div class=\"wp-block-media-text__content\">\n<p class=\"has-theme-slate-dark-color has-text-color\">After more than a decade of clearly favorable investing conditions, market dynamics have shifted. Conditions for investment are now more nuanced, and more uncertain. Download the 2024 State of Real Estate Investing report written by Dave Meyer, to <strong>find out which strategies and tactics are best suited to win in 2024.<\/strong>\u00a0<\/p>\n<\/div>\n<figure class=\"wp-block-media-text__media\"><img loading=\"lazy\" decoding=\"async\" width=\"680\" height=\"600\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/11\/MiniAnnouncement.png?twic=v1\/cover=680:600\/max=1000\" alt=\"MiniAnnouncement\" class=\"wp-image-162917 size-full\" srcset=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/11\/MiniAnnouncement.png?twic=v1\/cover=680:600\/resize=680\/max=1000 680w, https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/11\/MiniAnnouncement.png?twic=v1\/cover=680:600\/resize=300\/max=1000 300w, \" sizes=\"auto, (max-width: 680px) 100vw, 680px\" title=\"Are We Experiencing &quot;Transitory Mortgage Rates&quot;? What Does That Mean For Rates? 3\"\/><\/figure>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/do-transitory-mortgage-rates-exist\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article In March 2021, Federal Reserve Chairman Jerome Powell said, \u201c[T]hese one-time increases in prices are likely to have only transient effects on inflation.\u201d From then on, \u201ctransitory inflation\u201d became the phrase of the year in economics, with high hopes that once the initial supply chain shocks and government stimulus after the onset [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":10328,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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