This week mortgage rates jumped up dramatically, vaulting back up above 7% as the value of the dollar plunged against other currencies. This is not good. The market has a real 2008 feel to it. I remember sitting in a company meeting at Bradley Real Estate along with top producing mortgage broker Kevin O’Neal (RIP) with Countrywide, which was acquired in 20008 by Bank of America. Countrywide was a major player in the subprime lending process which led to a virtual collapse of the mortgage banking industry. Both Kevin and our broker Robert Bradley (RIP) were trying to put a positive spin on the market.
Rates in the first quarter of 2008 were averaging 7.76% and there was very little buying activity. People were losing their homes to foreclosure, or selling them short and getting banks to agree to take less than the value of the loans. I was in the thick of it, having sold more short sales in Marin County than anyone in 2007 and it was truly depressing. Either Rob or Kevin was being optimistic about the spring market, when I said something to the effect that things were going to get worse before they got better.
“Andy, we’re going to call you the Dark Cloud,” Rob said to the laughter of everyone in the meeting. It turned out it was no laughing matter as the Mortgage Meltdown and Great Recession ensued and I transitioned to selling many foreclosures for the banks.
I’m not saying the sky is falling right now but China and the rest of the world have a real prime opportunity to do damage if they decide to dump their mortgage backed securities which will cause our treasuries to further devalue and in turn lead to higher mortgage rates. In the battlefield that our economy has become, this is just another vulnerable front. The fact that our foreign allies have all been alienated by the ‘Tariffic’ policies is likely to come back to us. Karma is the great equalizer.
Speaking of the tariffs, which cut the value of American companies down at the knees, already we are hearing rumblings from buyers that they may take sideline seats until the economy regains it’s footing. Personally I expect things to get a little better over the course of the next 90 days during the pause, but the closer we get to 90 days the more unpredictable and volatile the situation will become. There's no chaos like made in America chaos. If 45/47 were a sagacious politician he would shelve the Draconian measures and threats until palatable deals could be made with all of the counties. Unfortunately, when he’s rage tweeting from the toilet at 2am, or any other time, his thoughts can only be mistaken as cogent by the delusional.
With the building animosity that has been snowballing towards Americans since January 21 we are already seeing a rotation of capital away from domestic securities, which can further erode stock prices. Foreigners are motivated NOT to buy American products, and they are being warned by their government about coming here, which ain't exactly a tourism boon. Meanwhile the new far reaching 10% tariffs in place even on uninhabited islands, plus the 145% tariffs on China are going to lead to inflation. That inevitability has been conceded by the administration. People are feeling it in the 401Ks now. They are going to start feeling it more and buying even less when we see a price surge. Most economists again are talking about a recession that is already here or on it's way. The D word was even bandied about before the stock market made a partial recovery when we switched course yet again on the tariff policy.
Are these economists the boys who cried wolf? For the past two years, economists and talking business heads have been warning about a recession. The economists are most likely in the right now, but will the right believe them? I’m not saying the sky is falling, but I didn’t earn the name Dark Cloud for nothing. The air up here is getting heavy.