Mortgage Rates have Dropped! 📉

We've talked about how inflation is the name of the game for mortgage rates. While inflation was at 9% in 2022 and it's down to 3% in 2023. So why did mortgage rates had a similar type of drop? There's been a little bit of a curveball thrown in the mix. So earlier this year, the government lifted their debt ceiling, which is kind of like giving themselves a no limit credit card. As a result, they racked up $2 trillion worth of additional debt. Well, now they have to sell that debt off their books. The way they do that is by issuing more Treasuries or bonds. And remember, mortgages turn into bonds, so tightly correlated, issuing more of anything waters down the value. So this waters down the value of bonds, which hurts mortgage rates. It makes them go up. This also downgrades the government's credit rating because they racked up additional debt. Just like a consumer, if your credit rating is downgraded, your interest rates go up. And this has created a ripple effect because the government's rates are up. They passed it on to everybody. So what's the solution here? Government's been hiking their rates and selling off Treasuries, hurting mortgage rates in both aspects. But we feel they're going to be at a tipping point here. And it's expected that the Fed's going to have 5 to 6 rate cuts in 2024 going the other direction. As the Fed starts cutting rates, they actually start buying up bonds, helping the value of bonds, helping push mortgage rates down. So this is two things. Collaps fighting with rate cuts and bond buying that we also saw during the COVID times when rates were record lows. I don't think they'll get there the record lows of 2024, but they will get in the right direction in 2024.