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Market Update

From the Desk of Jason Obradovich, Chief Investment Officer

Another Dip in Rates

Alexis: Hey, everybody! Welcome back to the Mortgage Rundown. Hope you've all been doing well. I'm Alexis Quinney, and I'm here with Jason Obradovich, CIO of New American Funding. Jason, how have you been doing the last few weeks?

Jason: You know, I'm doing very well. Thanks, Alexis. How are you?

Alexis: I’ve been good. I can't complain. So, since we last spoke, I have a couple of questions about the rates. So, it seems like they continue to go down and hit new all-time lows. Can you tell us a little bit about that?

Jason: Absolutely. You know, we've seen, you know, since this whole Covid thing, right? Mortgage rates, treasury rates, not even just the United States, but Treasury rates or what you want to call them? Bond rates around the entire world have come down and down and down. And so, really, in the last few weeks, we've seen another a little dip. Right? There's been these big swings and things flatten off, which rates really flatten off in May and June. But in July, they really started to come down even further. So, there's just been this further deterioration of mortgage rates where, quite honestly, people can get a mortgage rate under 3% for 30 years.

Alexis: So, do you think this trend will continue? And like, how much lower can they really go?

Jason: You know, we've had so many times since the Fed really got involved in buying Treasury bonds and buying mortgage-backed securities, this whole quantitative easing thing, we've just seen mortgage rates drop. Then they go back up, they drop even further. And that's actually been a trend, honestly, since the 1970s. Rates have just come down and down and down. And there might be a few years where rates go up. But the long-term trend over decades as rates have come down. Now, what will happen during Covid and what happens over the next couple of years? We don't really necessarily know. But the one thing we do know is the Federal Reserve is going to continue to buy mortgage-backed securities, continue to buy Treasury bonds, and continue to keep interest rates at low levels. Now, whether that's lower than where we are today, we don't know. But if I'm a betting man, I would say, yeah, over the next few years, we might see a couple more dips.

Alexis: Something else that I've been hearing about is the stock market just continuing to climb. So do you think that there's going to be a bubble? And if so, what is that going to do to mortgage rates?

Jason: It's hard to say in the stock market. It is trading very strangely, I guess. You have a bunch of money moving into tech stocks. A bunch of money moved out of the travel industry, whether it be hotels, airlines, anything that really was physically impacted by Covid. You know, the tech sector really wasn't impacted by Covid. That's the one thing I think that was the learning lesson was that tech companies can have workers work remote. Technology actually becomes more important when people are locked indoors. Right? Just think about the videos we're doing right now. It becomes of greater importance than a physical location. Instead of being in a building, the technology that's behind what we're doing now becomes really relevant. So the tech sector has done really well. Are we in bubble category? I don't think so. But, you know, investors are trying to invest somewhere. You know, they don't necessarily want to own Treasury bonds at a zero point something percent return. You know, they're a little bit scary and a little bit skittish about the airline or other credit sectors. And so, yeah, all their money's in technology. If there was a bubble and if that bubble were to burst, where does the money go? Well, it’s probably in the short term not going to run into restaurants and airlines and hotels. It actually might push rates down further because they start buying bonds, you know that flight to quality. I want to get away from risk. I want to buy things that have less risk. And so that actually could cause rates to go down further—if there was a bubble, even though I'm not saying that there is one.

Alexis: Makes sense.

Alexis: Well, that's all I have for you today. This is a lot of great information. I appreciate you taking the time to talk to me today and talk to our audience, but that's all I have for you.

Jason: Alright. Great. Thanks, Alexis. Hope all is well. And everyone out there hope you're doing well during the Covid crisis and, you know, frustrating time that we have. But I hope everyone is doing well.

Alexis: Yeah. And same here. Have a great day, Jason.

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