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30 year mortgage rate is based on inflation conditions


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2022 Oct 24, 11:39pm   1,145 views  14 comments

by AD   ➕follow (1)   💰tip   ignore  

Inflation is what drives mortgage rates. Higher inflation will cause banks to want to raise the mortgage rate since interest payments at a lower interest rate are not as valuable to the bank or mortgage note holder when inflation increases. So banks raise mortgage rates to ensure they can make money on interest payments relative to inflation.

"Mortgages are a 30-year instrument, so inflation hits them hard. Mortgage markets push mortgage rates up because future incoming payments will be less valuable." - Homebuyer.com

Also notice the 30 year mortgage rate peaked at 8.5% in 2000 and then steadily or almost linearly decreased to 2.75% in 2021. From 2000 to 2021, inflation was relatively tame. I wonder if it was because of worker productivity and innovation.

And are we in an economic rut because of our work ethic of our core workers (from age 20 to 40) ?

Does it have to do with Woke such as companies hiring based on other factors ?

Hence, we are producing less for the same costs, therefore the unit costs have steadily increased as we become more Woke, more dysfunctional and less productive and innovative ?

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Comments 1 - 14 of 14        Search these comments

2   AD   2022 Oct 25, 12:02am  

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Corporations, especially Woke ones, got lazy with all that easy money (i.e., low interest rates) and low inflation. It allowed them to easily borrow money and buy back shares in order to increase Earnings per Share (EPS) and lead to higher stock prices.

There were not major productivity gains since 2007 to account for stock prices going up from 2009 to 2020.

I recall listening to CNBC in August 2013 and the economist panel saying 50% of the stock gains from 2009 were due to Federal Reserve's zero interest rate policy (ZIRP) and quantitative easing.

We need more competition to motivate the workforce and companies to realize greater productivity gains in order to drive down the cost per unit.

That will result in the consumer getting more while paying the same or less. Then their standard of living is improved.

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3   Misc   2022 Oct 25, 12:27am  

Nonsense. All productivity gains since the 1970s have gone to the top 1% in this country.

The average Joe is in the same place as he has been. The rest of the world has done quite well though.
4   AD   2022 Oct 25, 12:36am  

Misc says

Nonsense. All productivity gains since the 1970s have gone to the top 1% in this country.

The average Joe is in the same place as he has been. The rest of the world has done quite well though.


You could look at wealth distribution such as what percentage of wealth (income, savings, etc) does the top 1%, top 5% and top 10% own. Plot that over time.

Compare it to the middle 50% and the bottom 20%.

The gains are largely based on sending jobs to Mexico, China, etc. The jobs were lost and those who would normally take the lost manufacturing jobs ended up working at Dollar General, etc.

The gains were profits which drove up stock prices especially since Bill Clinton signed free trade agreements in the 1990s.

Walmart merchandise became cheaper in the 1990s as a larger percentage of Walmart goods were made overseas.

The last TV in the USA was made at a Zenith factory around 1995.

I remember buying a 20 inch color TV by Zenith in 1993 for around $200.

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5   NDrLoR   2022 Oct 25, 9:08am  

ad says

TV by Zenith
"The quality goes in before the name goes on", at least as late as the 60's, but I don't know about the 90's.
6   theoakman   2022 Oct 25, 9:15am  

Inflation decreased during that period because we outsourced all production to countries that produced those goods with slave wages.
7   AD   2022 Oct 25, 12:27pm  

NDrLoR says

"The quality goes in before the name goes on", at least as late as the 60's, but I don't know about the 90's.


I had a 20 inch Zenith color TV in the early 1990s that worked great. It was made in the USA. It kept going even to 2009 when I decided to donate it to the Salvation Army and bought a 32 inch LCD for around $800.

Bought a small 13 inch RCA color TV for around $125 in 1998 that worked great and I believe it was made in Taiwan. This TV was for my office / den.

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8   AD   2022 Oct 25, 12:32pm  

theoakman says

Inflation decreased during that period because we outsourced all production to countries that produced those goods with slave wages.


Exactly, that is how international companies from laptop brands to athletic sneakers brands are able to squeeze out more productivity (i.e., less cost per computer). The GMC Terrain is made in Mexico, and I recall about 45% of the USA labor and parts. Our 2021 Honda CRV is made in Indiana and has more American labor and parts than the GMC Terrain.

From the late 1990s to 2015 was likely the greatest growth of outsourcing to China, Mexico, etc.

As I went through Home Depot recently I noticed even non expensive merchandise is more and more being made in the USA.

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9   DD214   2022 Nov 9, 4:52am  

A brief history of the mortgage, from its roots in ancient Rome to the English ‘dead pledge’ and its rebirth in America

https://finance-commerce.com/2022/11/a-brief-history-of-the-modern-day-mortgage/
11   Misc   2023 Mar 13, 12:16am  

During 2020, $2.7 trillion of mortgages were refinanced. In 2021 it was $2.8 trillion. The Federal Reserve has about $2.6 trillion of these, about 3% mortgages, on its books. The Fed funds rate is currently 4.25-4.5%. Some people think that these are the financial geniuses out to enslave the world.

The financial geniuses at SVB sold about $21 billion of the ones on its balance sheet causing the loss that caused them going BK.

That means there is about another $2.9 trillion of these mortgages on the balance sheets of other financial geniuses. Let's see..the rate differential between what people earn on their money markets (4.5%) and what the financial companies get from the mortgages is about a negative 1.5%. As more and more people move their funds from zero interest accounts to accounts paying market rates it is Death by a Thousand Cuts. The industry, as a whole, had earnings of about $280 billion last year.

Additional losses from bad loans is a whole extra layer.
12   Eman   2023 Mar 13, 12:29am  

Misc says

During 2020, $2.7 trillion of mortgages were refinanced. In 2021 it was $2.8 trillion. The Federal Reserve has about $2.6 trillion of these, about 3% mortgages, on its books. The Fed funds rate is currently 4.25-4.5%. Some people think that these are the financial geniuses out to enslave the world.

The financial geniuses at SVB sold about $21 billion of the ones on its balance sheet causing the loss that caused them going BK.

That means there is about another $2.9 trillion of these mortgages on the balance sheets of other financial geniuses. Let's see..the rate differential between what people earn on their money markets (4.5%) and what the financial companies get from the mortgages is about a negative 1.5%. As more and more people move their funds from zero interest accounts to accounts paying market rates it is Death by a Thousand Cuts. The industry, as a whole, had earnings of about $280 billion last year.

Additional losses from bad loans is a w...

@Misc,

These loans are considered HTM (held to maturity). There’s no mark-to-market like AFS loans. Most of these loans were sold to Fannie/Freddie. They are the biggest MBS holder. Banks don’t keep these loans on their book. They need to sell, make their commission and get the liquidity back to make new loans.

Here’s the explanation from my Federal Reserve buddy.


13   Eman   2023 Mar 13, 12:34am  

The reason the Fed and FDIC are willing to provide liquidity at “par value” on HTM loans because they all have equity. It’s just that these loans were lent at low fixed rate….like 3%. Now that depositors want 4-4.5% for their money, the bank are technically losing money on these loans. However, banks are making money on new loans so their net income margin is being impacted.

Banks are ok as long as they hold these HTM loans to maturity. In the residential industry, most, if not all, these loans were sold to Fannie/Freddy.

In the commercial industry, these HTM loans will adjust in 3-10 years time frame. It depends if the borrowers took a 3/1, or 5/1, or 7/1, or 10/1 ARM. These loans will roll off. Borrowers will have to refinance at higher rates so the money resets itself. The reset also happens upon the borrower selling the asset before maturity.

It’s bad, but it’s not too bad. It hurts the bottom line, but banks should be ok. The catch with SVB is that they used depositors money and bought long term AFS bonds and had to sell at a loss during a cash crunch.
14   Misc   2023 Mar 13, 1:45am  

@EMAN

You are basically saying what I said. As more and more people move from zero interest accounts (checking and saving) to market rate accounts it is "Death by a Thousand Cuts". Meaning the banks earnings go down for every person moving their money to the market rate account.

As for Fannie/Freddie, the financial geniuses at the other financial institutions hold their paper. Yes, it is long-term debt. Just because the mortgages themselves are held by Fannie/Freddie doesn't mean that the other financial institutions don't have the real ownership .Here's their balance sheet.

https://www.wsj.com/market-data/quotes/FNMA/financials/annual/balance-sheet

The reason the Treasury/Fed/FDIC took the actions they have is because if depositors started moving their money out of suspect institutions it would have forced the sale of these long term assets. Someone in the Mainstream media did the calculation that at market prices there is a loss of about $620 billion in the financial system if they were forced to mark to market. With the new Fed lending facility, where they lend at par, it allows for "Death by a Thousand Cuts" if depositors do move their money as the financial institution can pledge the assets for a loan from the Fed at the higher rates. The $620 billion loss figure is the loss on all outstanding assets, not just mortgages.

Right now our financial system is as shaky as it was in 2008.

That is just losses based on current asset values. The provisions for losses on the banks loan portfolios, from loans just not getting repaid, I feel are inadequate and add an extra layer of losses that people aren't even talking about yet.

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