The above chart is the plot of the 30 tear Treasury and Mortgage rates. What is surprising is that the Treasury rates are being held low and the mortgage rates seem stable to slightly increasing.
However if we look at the spread we see the result below:
What this tells us is that the FED is truly keeping the rates down at an abnormally low rate. This is most likely the position needed to justify the Budget long term deficit numbers but with the slow but increasing expansion of the economy we will see these explode.
The drivers for the upward pressure are seen in the PPI and the CPI. We show these below.
Note the continuing increases and they show a potential for a 7-8% inflation which will place dramatic pressure on the Fed Rates and thus on mortgage rates as well. It may even be possible to see an inverted yield curve for some period. That bodes poorly for many who have fixed incomes and long term investments.
The next look is the housing starts and the credit in consumer hands. We show that below:
Note that single family starts are slowly increasing and that consumer credit continues to decline. We anticipate a significant increase in home sales and this will be reflected first in sales of pre-owned homes but soon in new single family construction. Given the current Administration demands for funding this combination will surely drive up interest rates dramatically in the coming year.
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