Good Monday AM,
Busy economic data week. ISM and construction spending tomorrow and then unemployment data through the week with the biggest release of the month on Friday, the jobs report. Markets are flat today which is an ok place to be for the moment.
I thought I would share a piece from the WSJ on how the Fed is impacting mortgage rates. It is worth the few minutes to review (despite I do see Fed tightening potentially, taking us down a path of flat to negative growth which would then force rates lower), and a little note on not only buying property in the metaverse but also mortgaging it.
How the Fed Policy is changing interest rates (bottom line, as the Fed stops buying, someone has to fill that vacuum)…
The Federal Reserve’s decision to end its era of easy money is rippling through the mortgage market, driving up the cost of buying a home.
The central bank had been the biggest buyer of pools of home loans since the start of the pandemic. Now it is reversing course, winding down its purchases and laying the groundwork to shrink the $2.7 trillion stockpile it has built up. These mortgage-backed securities, hot investments for much of the pandemic, are now selling off.
“When you go from quantitative easing to quantitative tightening in two months, this is what happens,” said Walt Schmidt, a mortgage strategist at FHN Financial.
Recent market ructions have hammered securities of all stripes, from blue-chip stocks to junk bonds, pressuring many of the bedrock holdings in investors’ stock-and-bond portfolios. Prices of Treasury’s also have fallen and yields have risen, meaning the cost of borrowing stands to climb across the board.
The upheaval in mortgage bonds affects households in an especially direct manner. Less demand for mortgage bonds means issuers must offer higher yields to attract investors. So lenders have to raise interest rates on the mortgages inside those bonds. Already, the 30-year fixed mortgage rate is around its highest level since the beginning of the pandemic.
“As the purchases wind down, it will disproportionately hit demand for MBS,” said David Battany, executive vice president for capital markets at Guild Mortgage.
And if you want to talk tech, this is the future, although it does come with the cost of giving up some of your real life as you will be spending a bunch of time in a virtual world. A company called TerraZero Technologies Inc has just provided the first-ever metaverse mortgage. It was used to buy virtual real estate within the metaverse. The ‘land’ purchased was in Ethereum-based metaverse platform Decentraland.
Please remain safe and healthy.