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You Can't Go Without Food! Thumbnail

You Can't Go Without Food!

This article from Rodney Johnson details the housing market as it stands in the beginning of 2023. Read to see how the market affects our overall economy. 

Whether you've been a part of the housing market for years or are just getting started, this article will provide helpful insights for you.


Because my wife and I live in the greater Houston area, we typically pay less for gas than other people around the nation—but that doesn’t stop my wife from grousing about the price of gas.  She, like most of us, figured out early in her consumer career that gasoline prices rocket higher with the price of oil but fall more slowly long after the price of oil has retreated.  It’s almost as if retailers are quick to jack up prices but reduce them begrudgingly, boosting profits both directions.  There’s something to that, and we’re about to see the same thing happen in a different sector, housing. 

The Federal Reserve spent most of the last 14 years manipulating interest rates, and it continues to do the same thing.  First, the central bankers pushed rates lower by purchasing trillions of dollars in mortgage bonds and Treasury bonds between 2009 and 2014, and then, after a pause, they allowed rates to rise a bit from 2017 to 2019 by selling a $750 billion in bonds.  Today, the Fed is raising rates and selling bonds again, pushing up both the short and long ends of the yield curve, but it won’t last.  As we’ve seen since October, investors have pushed 10-year Treasury yields down from 4% to 3.5%, even as the Fed has raised short-term rates and sold more bonds. The 30-year fixed mortgage rate fell in tandem, down from 7% to about 6.4%, but there’s an issue.  The difference between the 10-year Treasury yield and the 30-year fixed mortgage rate remains near a 30-year high, and that spread is part of what’s holding down housing.  

The chart below shows the difference between the two yields since 1990.  Typically, the difference fluctuates between 1.5% and 2%, with the spread popping over 2.5% just three times over 30 years.   


Graphical user interface, chart, application 
Description automatically generatedChart created by Rodney Johnson of The Rodney Johnson Report


The first two times it was about fear: Treasury yields plummeted during the Great Financial Crisis and the COVID pandemic.  But the latest surge was about greed.  As the central bankers targeted higher rates, mortgage lenders got ahead of them by pushing up mortgage rates even faster. If mortgage lenders had kept rates in the typical channel of 1.5% to 2% above 10-year Treasury yields, then the 30-year fixed mortgage rate would be 5% to 5.5% today, not over 6%.   

Mortgage rates started 2022 near 3%, but then shot higher by more than 130% during the year.  If we want to see buyers return to the market, we’ll need to see mortgage rates fall not only to reflect falling bond rates, but also to shrink the spread between mortgage rates and Treasury yields. 

For more information on the housing market, feel free to watch this video from Rodney Johnson.

 Written by Rodney Johnson                                                                                                                                                                 The Rodney Johnson Report

Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. The information presented is not to be considered advice you can or should act upon for investment, tax or estate planning purposes without consulting with a professional to discuss your own set of unique circumstances. This article is designed to provide you with information regarding investing and planning for or during retirement.  You must seek professional advice separately before acting on any items discussed in this article. The views expressed are those of Rodney Johnson and not necessarily reflect the views of Mutual Advisors, LLC or any of its affiliates. Rodney Johnson is not affiliated with Mutual Advisors, LLC or California Retirement Advisors.