The first half of this year was very hard on all fronts from the stock market to housing prices to higher mortgage rates. It was actually the worst first half of a year since 1788 right before George Washington became our President. Now, what goes up, must come down.
Since June 14th, there has been a major shift in the market. Mortgage Bonds have rallied sharply since the eve of the 75 basis point rate hike from the Federal Reserve. Mortgage Backed Securities have gained 300 basis points. And the fear has now shifted from inflation to recession.
A recession is not all bad news. Historically, mortgage rates drop during a recession. After hitting a record high of $130 for oil, it is now at $97/bbl. Also, the 5 and 100 year inflation expectations have turned south. This will also go a long way in helping push mortgage rates back down.
The Bond market controls the Federal Reserve for the long term. The Fed controls the short term rate. If Fed Chair Powell keeps building up the Fed Funds rate, lower rates will continue to be on the horizon and we will see an even bigger pivot in the mortgage market.
The United States could already be in a recession after a -1.6% GDP in Q1 2022 and the forecast from the Q2 GDP is -2.2%. This is all to say that we feel we have hit the peak of mortgage rates. Things are shifting and for the better.