Hard Landing Ahead
It is getting more difficult to see a world where we actually have a soft-landing. The Federal Reserve has been on a tear, increasing the Fed Funds rate aggressively. Jerome Powell has spoken about targeting a soft landing as the Federal Reserve attempts to reduce inflation concerns. While it is not clear what is meant by soft landing, Investopedia defines it as “moderate” slow down in the economy.
As I write this, 30-year fixed mortgage rates hit 7.08%. The highest rate since 2002.
Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, September 27, 2022.
Those who purchased homes in the early 80’s are quick to point out that our rates are not as high as the ones they faced. However, this does not tell the entire story.
SLAM
The following graph is what concerns me. I plot the year-on-year change in mortgage rates. This shows us how quickly the market is changing, and how hard we are slamming on the breaks. Mortgage rates ending the week of September 23rd, 2022 are 118% higher than what they were the same time last year. This is the largest increase in interest rates we have experienced since 1972, when this data was first collected. The Fed is in a tough spot. Onyx, 90’s rap group, would call it “ playing Russian roulette with an automatic”. I don’t see how this ends well.
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