The world is on a tight rope

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This week, we’ll dive into an update on the Federal Reserve, markets, and a quick homebuying tip.

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A Delicate Balancing Act

If you read last week’s edition, you know the Federal Reserve decided to keep rates steady during last week’s press conference. In addition, the Fed Chair Jerome Powell indicated that rates could remain steady for the next few months—and even remain steady through much of the rest of the year if inflation remains high.

However, US inflation readings aren’t the only thing that the Fed is worried about. First Republic Bank failed last week. In addition, commercial real estate trouble continues to unfold as commercial buildings (offices, stores, etc.) once valued at high prices are now worth less than the debt amount they need to repay. Higher interest rates contribute to both of these issues. For an explanation on how lower yielding treasuries impact bank deposits and liquidity, check out this article here. For a looking into the potential commercial market collapse, click here.

The Fed also faces issues abroad, specifically in Japan. The Japanese Yen has reached some of its lowest levels versus the US dollar in decades over the course of the last month. In fact, it is likely the Bank of Japan intervened last week, selling approximately $23 billion of US dollar reserves into the market and buying their own currency to prop up the Yen. The word likely is used here because the Bank of Japan does not comment on whether it intervened or not until specific meetings. Why does this matter for the Fed? The increasing strength of the dollar versus other currencies can lower US exports. Specifically, if US goods are too expensive for other countries they will not buy them—which can drag down the US economy. The Fed hiking rates even further or even keeping them higher for longer may be the reason why exports were down in March compared to February, and the persistently high rates may continue to weigh on US export figures.

In sum, the Fed faces a balancing act: reducing inflation without causing serious harm to the US economy.

Markets see a solid week of gains

As of Friday morning, the stock market realized a solid gain with all the major indexes up between 1.20-1.75% over a 5-day period. The S&P led the way with the Dow Jones Industrial second and Nasdaq third. The Dow and S&P 500 are sitting very close to their all time highs, with the Nasdaq not too far behind. Clearly, higher rates, persistent inflation, a currency intervention, and two large wars (in addition to many other smaller conflicts around the world) have not put too much of a damper on US markets. The important indicators over the next few months will be inflation, US jobless claims, US payrolls, and GDP—but also keep an eye on US exchange rates with other currencies as foreign central banks tackle their monetary issues.

It’s homebuying season, here’s a pointer

Actually, the title is a pun, because we are specifically talking about mortgage points:

“Points” is a term that mortgage lenders have used for many years. Some lenders may use the word “points” to refer to any upfront fee that is calculated as a percentage of your loan amount, whether or not you receive a lower interest rate. Some lenders may also offer lender credits that are unconnected to the interest rate you pay - for example, as a temporary offer, or to compensate for a problem. For purposes of this article, we’ll be discussing “points” as they are connected to your interest rate.

If you’re considering paying points or receiving lender credits, always ask lenders to clarify what the impact on your interest rate will be.

Points let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be a good choice for someone who knows they will keep the loan for a long time.

Points are calculated in relation to the loan amount. Each point equals one percent of the loan amount. For example, one point on a $100,000 loan would be one percent of the loan amount, or $1,000. Two points would be two percent of the loan amount, or $2,000. Points don’t have to be round numbers - you can pay 1.375 points ($1,375), or 0.5 points ($500) or even 0.125 points ($125). The points are paid at closing and increase your closing costs.

For more information on homebuying, check out our full article here.

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