By Ryan Casey Stephens, FPQP®
Special Contributor
We were well on our way to a positive end of winter. Inflation was on the way out, and the spring market ahead of us looked like a walk in the park. Then, all of a sudden, the aliens invaded. Okay, maybe they’re not aliens, but something has us all checking the news and skies. The future is no longer a straight line, but we still have reason to keep our chins up.
Let’s spy the reasons why in this week’s Three Things to Know.
The Risk of Popping Balloons
The story that might be the strangest of the year so far began last week when U.S. forces shot down a Chinese balloon suspected of collecting intelligence. Instead of being an isolated incident, the UFOs are now being spotted all over the world and two more have been destroyed as of this writing. It all leads me to ask one question — why can’t we just have normal headlines anymore?
While not immediately apparent, there are real risks to mortgage rates as this situation unfolds. China immediately condemned the destruction of the first balloon, then demanded the U.S. return the retrieved pieces. If the situation continues to escalate with China, there are a few likely outcomes. First, sanctions might be put in place which would increase the price of goods we import from China. The rising cost of goods against the dollar, AKA inflation, can devastate bonds and cause mortgage rates to rise. Second, because we import so many materials used in construction from China, a disruption in that flow might lead to higher-priced new builds (or a shortage of new builds to begin with).
First Thing to Know:
We’re only now beginning to tackle inflation, so any escalation with China or another superpower risks undoing the delicate solutions in place. If prices soar again, mortgage rates will float up and away with them.
Speaking of Inflation …
This Tuesday is hands-down the most important market day of the week as we await the latest CPI inflation data. The report absolutely must come in with cooler inflation or rates are in for a beating. Mortgage rates headed higher at the end of last week in reaction to central banks in Europe insisting the fight against inflation isn’t over, despite markets here believing it is. This week’s data will be a “who’s right?” competition.
Second Thing to Know:
The CPI findings will be a tug of war: if the reading is lower, markets and mortgage rates will win. An unpleasant higher-than-expected read will be a win for central banks, and mortgage rates will rise to hurt consumers once again.
Understanding the Average Buyer’s Battle
I’ve referred to this in past editions, but Dallas-Fort Worth home buyers face major headwinds this year. It’s important to understand the challenges they face so you can present the value of buying a home calmly in spite of the struggle.
First, inventory is at near record-low levels, and builders aren’t going to go ham on construction any time soon. There’s no “explosion of inventory” about to occur that will lower the price of homes locally. The debt of the average American has reached record levels as more folks lean on credit to pay for basic necessities. For many, the thought of replacing rent with more debt, a mortgage, is difficult to consider. However, real estate has always been a safe haven during inflation. A homestead is also one of the only assets safe from legal judgments. Remember, too, a recession is likely if not already occurring. That will help keep competition down so we don’t see a repeat of last Spring’s catastrophe — dozens of buyers fighting over every house.
Third Thing to Know:
Texans are facing real challenges, especially in their wallets, but they need guides to show them the safety and value of home ownership. Contrary to how emotions might guide them, this winter and spring present a great time to buy a home.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
