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Will Inflation or the Fed Crash the Economy First?

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What happens if there’s hyperinflation? The economy is toast. What happens if the Fed raises rates too far too fast? The economy is toast. If the economy does fail, analysts will spend a lot of time determining whose fault it was. One part of the economy already signaling danger is mortgage demand. Dianna Olick reports for CNBC:

Mortgage demand appears to have nowhere to go but down, as interest rates go up.

Application volume dropped 1.2% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The week’s results include an adjustment for the observance of Labor Day. Since last year, homebuyers’ demand for mortgages has fallen by nearly a third.

Mortgage rates, which had been easing slightly through July and August, pushed higher yet again, after Federal Reserve Chairman Jerome Powell made it clear to investors that the central bank would stay tough on inflation, even if it caused consumers some pain.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.01% from 5.94%, with points decreasing to 0.76 from 0.79 (including the origination fee) for loans with a 20% down payment.

“The 30-year fixed mortgage rate hit the 6% mark for the first time since 2008 – rising to 6.01% – which is essentially double what it was a year ago,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Refinance demand fell another 4% for the week and was 83% lower than the same week one year ago. With rates above 6%, only about 452,000 borrowers could benefit from a refinance, according to Black Knight, a mortgage technology and data provider. That is the lowest number on record. These few remaining candidates could only save about $315 per month per borrower.

Mortgage applications to purchase a home squeezed out a gain of 0.2% from the previous week, but were 29% lower than the same week one year ago. There was a bump up in demand for Veterans Affairs and USDA loans, which are favored by first-time buyers because they can offer low or no down payments.

Action Line: Your Survival Guy’s got quarters in his loafers tryin’ to fight inflation. It’s not easy. Click here to subscribe to my free monthly Survive & Thrive letter, and we’ll weather this storm together.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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