The Breakdown:

Mortgage Bonds and Inflation
September 23, 2022

Before getting to the economic breakdown, we want to address a couple of questions that you may be asking yourself: Why is a mortgage broker providing general economic news and how does it relate to the mortgage or real estate industry?

In our industry, it is important to understand how inflation affects mortgage bonds. Besides the obvious increase in prices, inflation is the enemy of fixed investments, e.g., Mortgage Bonds. The reason for this is that inflation eats away at the buying power of a bond's fixed rate of return. This is why, when inflation increases, investors try to overcome the inflation by demanding a higher rate of return, driving interest rates up.

Now, let's start with some good news! A potential railway strike has been averted, which would have cost the economy about $2B per day. The White House announced that a tentative deal has been put in place in an effort to avoid further strain on the US supply chains.

The headline Retail Sales numbers were up 0.3% this past August. Although that's stronger than expected, it is the Core Retail Sales figure - which strips out items like vehicles, gas, building materials, and food service - that gets factored into GDP. This number came in flat, lower than the expected half-percent gain. This is significant because it could lead to negative revisions for third-quarter GDP estimates.

In addition, the World Bank and FedEx's CEO, Raj Subramaniam, both expressed their belief that we are headed towards a global recession. Usually, when we see a recession, it affects about half the globe, and those who are not experiencing a recession come to the aid of those who are. The interesting factor in this is that the US often extends a helping hand but who will help pull us out?

This week, all eyes will be on the Fed, as they finish up their two-day meeting this afternoon and follow up with the Monetary Policy Statement and press conference. Everyone is expecting another 75bp hike, but it is imperative that the Fed show some confidence in getting inflation under control if they hope to ease the mind of a skittish market. Stay tuned for the breakdown next week.

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Assuming the monthly taxes and property insurance of $315.50, the monthly payment on a $242,500 30-year Fixed-Rate Loan at 5.75% and 97% loan-to-value (LTV) is $1803.41 with borrower-paid mortgage insurance. The Annual Percentage Rate (APR) is 6.276% with estimated finance charges of $6,500. Taxes and property insurance are estimated and may vary with each loan. Rates are current as of 9/14/2022. Subject to borrower approval. NMLS: 364758