Good Morning on this best day of the week, Wednesday,

I spent yesterday at the annual mortgage bankers convention and came away with a few economic guesses / eye openers to share. The four most important are that:

• Purchase business is expected to increase by more than 10% in each of the next three years
• Property prices are expected to increase 10%+ in the next year (closer to 16%)
• Inflation is looking to be persistent and will be elevated through 2024
• With inflation running hot, mortgage rates may touch 4% this time next year

These are really smart people setting expectations, but no one has a crystal ball. The last two in particular seem suspect. Growth would appear to be slowing and likely to go negative. It will be tough for rates to continue trudging upwards when growth is slowing, as the Fed will likely need to keep rates low longer than planned. I wouldn’t bet on it either way but that’s how I read the tea leaves right now.

As for today, Bonds are losing ground. The 10-yr is at 1.64%, wowsa.  There is no news causing this, just continued selling pressure stemming from inflationary concerns and the corresponding supply chain issues. This will get better, the supply chain will not stay broken, but it is going to take longer to straighten out than anyone wants. When you’re by the piers, look onto the water and when you no longer see ships, the problem is solved. Fortunately, we do not have a demand problem, those are harder to resolve. The next FOMC meeting is two weeks from now. The Fed will likely taper next month and then the market will focus on when rates will rise despite the economy slowing.

Dan Rawitch shared, “No one is talking about this because the fear is on inflation. We are likely headed toward a minor recession and this will suck most of the demand out of the market, thus removing the supply problem. If this happens just as manufacturers fully ramp up, you get deflation and much lower rates. I see this coming in 2022, sometime in the second quarter, with signs getting more clear in the first quarter. For now, keep playing defense and wait for a nice correction in bonds.” I hope he is wrong.

Please remain safe and healthy, make today great.