[00:01] housing markets. Mortgage interest rates have been shooting up. So, why is this happening? What are the consequences on the housing markets? And when will Now, I want to show you this on the chart how rapidly mortgage interest
[00:16] average interest rate on the 30-year fixed for the past 12 months. And it's plotted and updated on a weekly basis. So, listen, what you see here is the tail end of last week where the national average was at 6.36%
[00:33] for a 30-year fixed mortgage. But, right now, over the past few days, it's now risen to 6.75%. So, again, this is where we were last week. But, if we extend the graph ourselves, and this graph is coming
[00:47] straight from the Federal Reserve's websites, so then this is what we're going to see when they update it, spiking it to this level in just 1 week's time. Now, I just want you to take into consideration that we were
[00:59] take into consideration that we were below 6% in March. So, that rise to 6.75% was rapid. So, that's not normal for mortgage interest rates. that we made bringing down mortgage
[01:13] interest rates over the past year to see it all undone in about 2 and 1/2 months' So, it was a grind. I mean, just take a look at the chart. It was a grind bringing it down below 6% and then boom, all of a sudden that progress was just
[01:26] gone and just undone. Okay, now, I want to show you why mortgage interest rates have been shooting up higher. And to begin, you important. So, mortgage interest rates are
[01:38] correlated to the interest rate on government debt. So, that means that if interest rates on government debts goes up, then interest rates on mortgages are as well. If interest rates on government debts goes down, then mortgage interest
[01:52] rates are going to go down as well. So, they're correlated. Okay, so, to see the correlation if you look at the gold line, that's the average interest rates on mortgages. And you can see the interest rate, like how
[02:06] graph. And the lighter bluish line is the interest rate on the 10-year Treasury notes. And you can see the interest rate exactly how much it is. So this is basically what it costs the
[02:20] US government, the federal government to borrow money for a 10-year duration. So anyways, as you can see, they're correlated. And listen, I just want you yield that's been spiking up. It's the 30-year yield that's been spiking up as
[02:34] Okay, so why are interest rates on government debt shooting up and consequently causing mortgage interest rates to shoot up as well? reasons, but I want to give you the main ones. So first,
[02:49] I want to explain to you the system that we currently live in. So it's called the petrodollar system. So the deal is that oil trades globally So the deal is that oil trades globally for the majority of trade in US dollars.
[03:03] Gulf selling their oil in dollars, and which Okay, so they they sell their oil, they receive the dollars, but now what do received? Okay, so generally this is what happens.
[03:17] They take their dollars, at least a sizeable chunk of it, and they buy US Treasuries with those dollars. So essentially, they take their dollars, they lend it back to the US government, and the US government pays those Gulf
[03:31] and the US government pays those Gulf countries interest income. Okay, but now depending on what country that you're talking about, less or none of that oil that they're producing over there is getting exported out.
[03:43] have those Gulf countries, they have less or fewer dollars that they're receiving, right? Which means that they have fewer or no dollars to buy US Treasuries, which means that interest rates on US
[03:58] know what? If you want me to explain to you as simply as possible, their oil that they're producing, it's not getting out, so they're not making money. And if they're not making money in US dollars, then well, they have no money to lend to
[04:12] the US government to buy US Treasuries. That's simply what's happening. And then you have the situation where other countries need oil. And in order to buy oil in US dollars, they need dollars, right?
[04:25] So, what do they do? They sell their Treasuries to receive dollars in order to buy oil. Okay, but when they sell their government bonds, you know, US Treasuries to fall. And interest rates
[04:39] Treasuries are going to increase. So, that's why we're seeing interest rates And another reason why interest rates are going up is because the supply of oil has been disrupted, right? The Strait of Hormuz.
[04:53] the price of almost everything's going major input cost for just about everything, right? So, if the supply of energy is disrupted and prices are expected to go up, then
[05:07] up as well. And if inflation expectations increase, then bond investors are going to want to be compensated at higher interest rates for lending money to the US government. So, that makes sense, right?
[05:22] with lending money to the US government for an interest rate of, let's just say But now, with all this going on, you think that the rate of inflation's going to be running at 5%.
[05:36] to lend money to the US government for 4% because if you think that inflation's going to be 5%, then you don't want to be compensated 4%, otherwise you're going to be underperforming inflation and you're
[05:50] real purchasing power. higher than the rate of inflation in order for you to truly come out ahead, right? So, inflation expectations are going up.
[06:03] Therefore, interest rates on government debts are repricing. Okay, so I just told you what is happening. Mortgage interest rates are going up and I just explained why it's happening. It's because interest rates on government
[06:16] debts is going up and those two are correlated. And I just drilled down into why that's happening, why interest rates on government debts is going up. Okay, now I want you to know the consequences of higher mortgage interest
[06:30] rates in the housing markets. So, here are the biggest points that I want you Higher mortgage interest rates will further reduce affordability, of course. It's going to slow down sales. It's going to lead to fewer buyers as fewer
[06:43] buyers will be qualified. It's going to cause increased And this is going to be a headwinds for home prices. doesn't necessarily mean that home prices are going to go down. It just
[06:57] if home prices are still going up, like if they're still on an upward they're just not going to go up as high as they would have with lower interest And if home prices are going down, you know, if they're on a downward
[07:10] trajectory, then they're going to go down more than they would compared to if interest rates. higher mortgage interest rates will put downward pressure on home prices, but
[07:24] it's not going to collapse the housing market in terms of price. now, and the most recent housing market data out there is currently April. For the month of April, home prices in the US nationally rose by
[07:39] 0.2% month-over-month. And home prices rose by 2.1% year over year. So, home prices are not crashing. As a matter of fact, they're still going up. I mean, I don't think that you can deny that home prices are still expensive.
[07:54] You know, home prices have not crashed nationally to a point where people are know, so affordable right now. Homes are so cheap right now." You know, I I haven't been hearing that. And I just want to give you some context
[08:07] average interest rate on a 30-year fixed mortgage. And this is kind of from the Federal Reserve. So, we're currently at 6.75% right now. years. Yes, 6.75% is high, relatively speaking.
[08:23] You know, there's no doubt about that. Especially compared to the 3% or sub-3% that many people still have right now on their mortgage. However, we've been here at 6.75% before. And it was not enough to crash
[08:38] the housing market. I mean, we even got closer to 8% back in So, I'm sure that it slowed down the market. But as you know, it didn't crash So again, this is definitely going to be a headwind for us in terms of home
[08:51] a headwind for us in terms of home prices. But leading to a crash just on that's a stretch. And another thing that I want to address is that we just got word a few days ago that mortgage delinquencies are
[09:04] this was expected. We actually covered this thoroughly in previous videos. But I just want to give you a high-level summary. Yes, higher mortgage interest new borrowers to keep up with their payments, right?
[09:19] foreclosure activity, we're starting from a much smaller base compared to the previous housing market crash. So yes, although delinquencies are increasing, it's off a much lower starting points. So therefore, at this
[09:35] like if you look at the data, I don't see the need to panic. So, if it's going to if the delinquency rates is going to keep on growing and increasing for another, you know, 2 3 years, then yeah,
[09:47] then it's going to be a a cause for a bigger alarm, but I just don't see it at this point in time. Now, in terms of when mortgage interest rates in terms of when mortgage interest rates will come down, my honest answer is that
[09:59] You know, if there's going to be de-escalation, if there's going to be escalation, or if this is just going to drag out. It's the war that's of course driven it up, mortgage interest rates. If the war
[10:12] continues, if there's more trouble with the petrodollar, if there's liquidity expectations then yes, mortgage interest rates are going to go even higher than where we're currently at. If the war de-escalates,
[10:26] then mortgage interest rates, you know, you can expect them to come down. If the Federal Reserve gets involved they can actually buy Treasury notes and Treasury bonds and bring down mortgage interest rates. However, if they do
[10:39] inflation and that's going to cause home prices to go up. Anyways, that's all for today. I hope that helps. Please subscribe. Thank you for the support and I wish you a very nice day. Take care.