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The Rising Rate Conversation & How We Arrived Here

Jun 24, 2022 Mortgage Speak

Right now is a pivotal time in our economy. And the real estate market is at the forefront of the conversation in the media and amongst consumers. On an individual level we can look back at how our habits have changed since March 2020. Most of us began working from home. Most children were not going to school. There was very little dining out. And those who loved to travel we were literally “grounded”.  Spending habits changed. People reimagined family time and how they may need more space in their homes.

From March 2020 to now we were all making a small impact every day on our overall economy. Once the doors of the world opened  back up, we started to spend again. And we started spending in a big way. Think about your individual lifestyle changes and multiply this by the world. This is where we are today. People who were not considering moving became buyers in real estate. People who were never real estate investors started buying investment properties with cash on hand. These are just a few examples of how we arrived at the cross roads of more demand than supply. Real estate is at the top of the supply and demand list because the dollars assigned to this commodity are much greater. All other goods and services fall in line behind: labor, lumber, appliances… With this explained, we realize the “why” in 2022 and “why” inflation is now present.

We are all here in 2022 wresting with the reality of our individual impacts on spending and seeing shifts in the economy. We must let go of where prices and rates were in 2020 and 2021, and change our strategy.  With the Federal Reserve raising their fed funds rate there is a long term goal to slow down the pace of spending. The Fed is not trying to create more cost. The Fed is seeking a balance of supply and demand. Mortgage rates are higher not because of the Fed increases. Mortgage rates are higher due to the lack of demand for bonds by investors. When supply and demand is out of balance (i.e. inflation), the value of bonds is significantly lower. Less demand for bonds means higher rates.

So where do we go from here? Well, we individually realize our impact and remain focused on the longer term goal. Just like our habits changed over a two year period, the adjustment back to a balanced economy will take time. Once that balance is regained, we will start to see more demand for our bonds. I cannot predict the trajectory of interest rates. However, bonds will always be a commodity. Once inflation subsides, investors will see their value again. Mortgage rates historically cycle up and down. Rates may be higher now but they remain a commodity for those who cannot pay cash for a home. There will not be an environment where someone who truly needs to buy a home will not do so because of an interest rate. The sum total of the parts is to realize you do not buy a home because of mortgage rates. And you do not decide NOT to buy a home because of mortgage rates.

Real estate will always be a need among consumers. Growing families, job changes, relocations, downsizing are just some of the life changes that necessitate a home purchase. Home financing is always a need. The key is to realize it is a personalized approach. We can make the best of where rates are now in our current environment. If you need to buy and finance a home right now, look at the numbers. The numbers will always give you the answers you need to make an informed decision. I am a resource for information, and I hope you will be encouraged to reach out for the facts.

By Shannon K. Bradshaw


The opinions expressed within this article are the author’s and do not necessarily reflect the opinions or views of BankSouth Mortgage or its affiliates.

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