Why? Because we are NOT inverted!
Many believe mortgage rates are set to drop this week because of a highly anticipated Federal Reserve Board meeting that begins tomorrow. THIS IS WRONG! Mortgage rates are indeed poised to fall, but not because of The Fed meeting. Let us explain…
Last summer we wrote a similarly titled post about a rare phenomenon in the financial markets known as a yield-curve inversion. You can go back and read it (especially if you’re a Top Gun fan), or here are the brief Cliffs Notes…
A yield curve inversion occurs when rates on short-term bonds are higher than long-term bonds. An inversion has only occurred 4 times in the last 40 years, and an economic recession has shortly followed each and every time.
Well, we’re here to update you on the yield curve and clarify the timing of the recessions that typically follow.
This month marks the first time in over two years where the yield curve is no longer inverted. It’s the longest continuous inversion period in modern economic times (sections colored in red on chart), and many feel it’s return to positive territory is long over-due.
But, this does not mean we are out of the recession woods. In fact, it’s typically a sign that economic troubles are just about to begin. A yield curve reversion to normalcy has preceded every recession of the past 40 years by just a few short months. If history repeats itself, then its only a matter of when we’ll be in a recession…possibly as early as later this year!
Some argue that we are already in one. Influential & entertaining economist Elliot Eisenberg finds that 9 of the 20 most reliable recession indicators have already been triggered. Historically, when at least 6 of these indicators are flashing red, a recession was already occurring or was about to.
This is not meant to be a doom & gloom post. In fact, quite the opposite!!! The real estate and mortgage markets have been in a funk for the past 2 years, largely due to higher interest rates. The silver lining to an economic recession is it will likely lead to significantly lower mortgage rates. Lower rates will help struggling homeowners consolidate debt more affordably, aspiring home buyers to break into the market, and hesitant home sellers feel less locked-in to their current low-rate mortgage.
All in all, a mild recession and lower mortgage rates could be healthy for our floundering real estate market. Time will tell if and when lower rates are coming, but if you’ve been holding off on making a big real estate decision due to high interest rates, then you should begin reconsidering your options now. Give us a call to discuss where rates are at, where they may be heading, and what they need to get to in order to help you make a confident decision in your real estate affairs.