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As Debt Increases, Interest Rates Decline….Wait! What??

More Money

Need Money?   More Money!!

There appears to be no shortage of stimulus money available.  There was talk this week President Biden is considering another round of stimulus checks…making it the fourth of it’s kind.  Past rounds have seemed to infuse vibrance, the economy is stimulated, spending goes up, savings goes up, the economy and GDP go up.  However, is it transitory and will all this debt continue to push up inflation or eventually cause a slow down in the economy?  

I brought this up on Friday’s Market Trends with Megan Aller not as something to worry about, but simply acknowledge and consider.  

Think about when you want to buy a car.  You can save every month and buy that car in a few years.. or use credit and buy that car today.  When you use credit, it pulls future spending forward, igniting demand and increasing GDP.  But when that spending pop fades, what is left is the debt.  Historically increased debt drains economic spending since more of the income available is used on debt servicing, which drains the economy and in turn reduces demand, inflation and interest rates. 

Additionally, the Federal Reserve will continue to use selling and purchasing of Treasuries to impact rates.  Right now they are buying $120M/mo of MBS and Treasuries to keep rates low, soaking up supply, pushing prices higher (supply/demand rules) which pushes yields lower. The Feds will pull back on purchasing (taper) allowing rates to go up.  It’s a given this has to happen.  But will they look to purchasing more in the future as lower interest rates mean the government doesn’t have to spend as much to pay the interest on the debt, which then provides more monies to use for other programs?

Going back to 1952, the United States (first graph below) has seen similar historical patterns as France, Japan, Italy and the UK (top left to right on second graph below); as debt increases, interest rates decline.

So the question is.. are we taking on too much debt, will we see a secondary recession, will home values go down?  Along with the “we are not in a bubble conversation”, this idea has to be acknowledged.  Here is where I land… economies bring opportunities.  This one brought a raging stock market and real estate appreciation.  The next one might bring a sale on assets. Knowing what might come only gets me more excited to diversify my portfolio, take advantage of long term security in real estate, and allow today’s appreciation to build equity protection for any changes in the future.   Yep… I love what I do!

More Money in a Child Tax Credit

Some of that “more money” is headed to parents.  We are still waiting on specifics around the first time home buyer tax credit as well as the first generational home buyer grant. Neither of those have been release or finalized.  In the meantime, another stimulus bill passed last week giving parents a little more money this year and next.

Bill proponents expect this tax credit to make it into the hands of 85% of parents.  If you make less than $75,000 as an individual or $150,000 as a couple, you qualify for the full benefits of $3,600 per child.  If you make more than that, the benefits are reduced by $50 for every $1000. How this will get distributed is $300 per month per child starting July 15th.  With an additional lump sum of $1,800 to be paid on April 2022.

Also note, the IRS is in the process of sending out “plus-up” payments to individuals who did not get as much stimulus as they earned.  They are reviewing 2020 tax returns as they come in and if you were newly eligible (ie, did you have a baby?), a check will be processed!

Want to find out how much you can expect from the new Child tax credit?  Click here or the picture below.

More Money for First Responders and Teachers

Some of that “more money” is headed to police officers, prison guards, firefighters, paramedics, EMTs and public or private teachers.  If you worked in this profession for the last four years and sign a commitment to stay on the job for a minimum of one more year, you could be eligible for a newly proposed homebuyer program.  This one, if passed, would be administered by the Federal Housing Administration (FHA) and not require any down payment (i.e. like VA and USDA loans) if you meet the employment requirements.  There will be a 3.6% up front mortgage insurance and is expected to have lifetime monthly mortgage insurance like other FHA loans.

Stay tuned as we learn more on if and when this gets passed.

 

AUS Jumbo Programs up to $3,500,000

With purchase prices going up; it is much welcome news to know loan programs are expanding!

A few weeks ago, Fairway Mortgage rolled out a new 10% down AUS jumbo product.  AUS stands for Automated Underwriting System.  This is Fannie and Freddie’s automated approval process. Jumbo traditionally is a manual underwrite, which is why it is so document heavy and cumbersome.  With the 10% AUS jumbo, we can now run an automated approval and use those automated conditions .. which are ALWAYS easier than a manual underwrite.  Making Jumbo feel like Conventional.

In addition to the original AUS Jumbo, Fairway Mortgage now has THREE more jumbo aggregators offering similar programs.  This continues to expand buyer options when financing their new home or refinancing their existing home.

  • 10.01% down (89.99% loan to value max)
  • First time home buyers OK
  • Loan amount to $3.5M
  • Purchase, Refi, Cash-Out Refi
  • Primary, Second Homes, Investments
  • Credit score down to 660
  • 1 Year tax returns for self employed (with AUS approval)
  • DTI to 50%
  • Reserves based on AUS

 

Emily LOVES MetroDPA!!

Emily Krutsinger, my Operations Manager, loves MetroDPA.. and for good reason!  Their homebuyer grant is forgiven after only three years!   The grant is up to 6% of the loan, does not require the homebuyer be a first time homebuyer, and now.. raised their income limit to $150,000.  In today’s heated market, we have to capitalize on every option available to help our buyers get under contract.  

Learn more about MetroDPA here.​

 

 

Nicole Rueth has been passionately advising clients on their wealth building and home financing strategies for over 17 years. Her path has been non-conventional and it is a benefit to her clients.  www.TheRuethTeam.Com.
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