Rocket Fuel Newsletter – 03/19/22

close up of male hands with newspaper and coffee

St. Patrick’s Day was mostly mask-free this year as things continue to normalize in the U.S. 🍀

It’s said that leprechaun’s pot of gold has a coin for each year of its life. Recent flight-to-safety trading and inflation in the markets values that pot-o-gold at ~$2 million. 🌈

This week’s edition has rate hike info, homebuilder feelings and the best cities to buy-vs-rent.   

Fuel Up! 🚀

Powell's Corner

Powell Pivot Progresses

No surprise here – on Wednesday, the Fed voted to increase the federal funds rate by 25 basis points.

The federal funds rate is a target the Fed sets for the average interest rate banks charge for another bank to borrow from them on a short-term basis. This decision was the first increase since 2018.

Officials have kept rates near zero since March 2020 to stimulate the U.S. economy during the pandemic.

So why the change?

Global tensions and ongoing supply chain disruptions continued to contribute to ~40-year inflationary highs.

Gas prices, which skyrocketed 38% year over year are grabbing headlines.

On the bright side, crude oil spot prices have trended downward since March 8, indicating costs consumers pay at the pump will similarly soften in the coming weeks.

Notice how volatile oil prices have been – in the pandemic, you would have been paid to accept delivery of oil!

With inflation around levels seen during the Great Inflation in the 1970s, there have been worries that increasing interest rates too rapidly could lead to an era of economic stagnation, which is what happened in the 1980s.

But there are significant differences between then and now.

Interest rates were already at 10% in 1979 before the Fed pushed them up to 19% in 2 years. Compare that to a slow ~3 percentage point increase over the course of a year with plenty of signaling by the Fed.

As the Fed continues to fight the inflation narrative with rate hikes, it becomes extremely important to lock in mortgage rates before volatility ruins a deal.

Condo Simply

As the market shrinks, diversification becomes more important.

Want to win condo business like a pro? Check out this tip from Mike Fawaz.

Follow Fawaz on Instagram for the best mortgage content in the game.

Caffeinated Trends

This week we got an update from the National Association of Home Builders on how they feel about the future.

The index for builder sentiment slid for the third month straight in March due to future sales expectations dropping.

Builders continued to cite building material shortages and rising costs as major headwinds.

However, some builders are worried that higher interest rates will erode home buyer affordability and purchase demand.

In February, home prices rose a staggering 20.3%, while the asking rent price rose 15.4%, on an annual basis.

February marked the first time that monthly mortgage payments became less affordable than monthly rent for borrowers with a 20% down payment.

Least favorable to buy vs. rent (of the top 14 largest):

San Fransisco: 2.65
Seattle: 1.98
Los Angeles: 1.88

Most favorable to buy vs. rent (of the top 14 largest):

Miami: 0.88
Detroit: 0.93
Chicago: 0.96

Last Chance To Sign Up For Pro Performance Sales Training: Are You Getting The Point? Selling Mortgages With Points

Don’t forget to sign up for next weeks Pro Performance Sales Training about effectively selling mortgages with points. This is your last chance to sign up. It’s happening Tuesday, March 22, at 2:00 p.m. ET. Learn about the similarities between investing and paying points on a mortgage.We’ll cover the advantages of paying points, share great tips about explaining it to clients, and give you pro tips on how to present loans with a higher upfront investment. Remember, this is a virtual event, so you can watch anywhere!