Forward curves. Will we have double digit mortgage rates in 2024?

[Data Dave]

6.52%!

Alot riding on this months inflation print (so says me every month for the last 24 months 😅)

[Data Dave]

Assumption is peak in Q1-Q2 '24. Roughly 6-12 months for resi mortgage rates to follow through after? 

[Si1]

1 hour ago, Data Dave said:

Assumption is peak in Q1-Q2 '24. Roughly 6-12 months for resi mortgage rates to follow through after? 

Thanks for keeping this updated my dude.

[HousePriceTooHigh]

We could well have another round of inflation this winter.... bad harvests due to weather, energy prices up again.......................... 7-8% next year still very possible

[scottbeard]

10 hours ago, HousePriceTooHigh said:

We could well have another round of inflation this winter.... bad harvests due to weather, energy prices up again.......................... 7-8% next year still very possible

But how does raising interest rates combat inflation caused by bad harvests?

Raising interest rates is a measure to tackle demand-led inflation by reducing demand.

[NoHPCinTheUK]

23 minutes ago, scottbeard said:

But how does raising interest rates combat inflation caused by bad harvests?

Raising interest rates is a measure to tackle demand-led inflation by reducing demand.

It eliminates competition for the good it self. It is as simple as that. Higher interest rates, leveraged restaurants close, the available food goes to the supermarkets. Less demand, with that originated from credit totally eliminated, helps brining the price down or simply not to skyrocket. 
 

[BorrowToLeech]

11 hours ago, HousePriceTooHigh said:

We could well have another round of inflation this winter.... bad harvests due to weather, energy prices up again.......................... 7-8% next year still very possible

Hate to say it, but isn’t there another Brexit thing coming as well?

[scottbeard]

2 hours ago, NoHPCinTheUK said:

It eliminates competition for the good it self. It is as simple as that. Higher interest rates, leveraged restaurants close, the available food goes to the supermarkets. Less demand, with that originated from credit totally eliminated, helps brining the price down or simply not to skyrocket. 
 

Sorry I still don't buy this.

Let's say price of food rises due to a bad harvest.  On its own that would increase inflation

BUT

If people are now spending more money on food, they will have less to spend on other things, which will then go down in price 

AND

The fact that food is more expensive ON ITS OWN means that people will buy less of it.

This is very different from demand-led inflation where people have more money, so they just spend it on all sorts of stuff and drive up inflation.

[NoHPCinTheUK]

If the amount of goods falls and the amount of money in circulation is the same you’ll have inflation. 
Inflation is always the result of more money chasing fewer goods. Whether it’s a supply side or money offer issue is irrelevant.
Of course the way to respond will be different.

In the specific example you made about food, there’s obviously an element of heavy government intervention involved. Trying to drive the demand is the easy tool but in extreme circumstances the gov might ditch the price mechanism in favour of rationing. So yes, if food prices go up, the first line of defence are interest rates which will hopefully move the demand for food from the bad performing corners of the economy to those who can manage the shock more easily. But as I said the gov is heavily involved in food production and distribution so it’s more complicated that this message. 

 

[Data Dave]

[Flat Bear]

Will we have double digit mortgage rates in 2024?

Oh yes.

[The Angry Capitalist]

Probably not in 2024 but 2025 looks a real possibility to me.

It almost looks inevitable.

[Flat Bear]

3 hours ago, Flat Bear said:

Will we have double digit mortgage rates in 2024?

Oh yes.

I have noticed traditionally mortgage rates have been approx 2% above base rate obviously other factors prevail.

The lower the base rate the lower the % above the base rate (obvious?) But at normal rates of 5% to 8% this was the norm. This will be truer today than it ever was as pre 2009 the markets had to rely on savers to balance the books incdg the carry trade which has disappeared completely. The carry trade kept prices high in the UK by keeping enough money in the system up until the era of QE and ZIRP. So in the past it was the differential between savers rates against the mortgage rate where as now it is just the BOE base rate which is still so low against the mortgage rate. When QT actually starts, which it must, and the BOE base rate rises to over 6% we will start to see a reversal and suddenly the banks will look to find cheaper sources of capital. This could happen quite quickly and we are entering very turbulent times. Expect the banks and other institutions to start offering 3% or even upto 5%! on your deposites.

I would guess there are still tracker mortgages at less than 1% above base rate (too lazy to check) but as the base rate rises and stays high and capital gets more expensive and less plentiful the percentage must rise to maintain margin

When the base rate is very low say 0.1% as it was for nearly 2 years the banks could offer base rate plus .25% and make a massive 250% mark up especially when this capital was so freely available.

When the base rate gets towards its normal range 6% then the banks will have to get base rate plus 9% (15% wow)to make the same margin.

This is all a case of supply and demand and although the actual margin does fall massively the money (capital) that they do lend out becomes much more valuable thus the bank will look to make much lower margins but will make more on each mortgage. So there will be a shrinkage of money being borrowed as the price/cost rises and the double wammy will be there will be less of it anyway due to QT and other tightening. The BOE know this and will be trying to co-ordinate money supply QT with demand but will hope that there is still enough of it to purchase their bonds.

[Data Dave]

20 hours ago, Data Dave said:

The curve is a fallin’…
 

But I’ll have a guess and say 1 more hike:

Wage rise shock from between now and Xmas. Labour market still actually not to bad (famous last words) so I think a wage increase could be had for most employees. 
 

Energy shock over winter has potential…

Stock markets sell off 5-10% meaning bonds up…

More bankruptcies…resulting in negative sentiment.

All guess work ofcourse but it all has legs 

The MPC has said they think inflation back to target in 2025….that’s a little while off 😅

[Roman Roady]

What did these charts look like a year ago?

[Maghull Mike]

14 hours ago, The Angry Capitalist said:

Probably not in 2024 but 2025 looks a real possibility to me.

It almost looks inevitable.

Quite interesting, Luke Gromen thinks the FED will be forced to cut rates & QE in 2025............i don't think so.

They need to give their "Fiat" ($) some back bone .......They might revalue GOLD, but am not sure...........its even possible that they cut a deal, but given how they broken just about EVERY deal they made with EVERYONE then that looks unlikely.

 

My personal view, for what its worth is that the USA will carry forth its plan. Use Canada/Mexico to "circle the wagons" ......Europe will totally blitzed (again). They do business with the Global South via supporting their "Fiat" with high rates........they fully aware which way things are going, but will "pretend & extend"......keeping the $ as the major currency in world trade for as long as they can.

 

Mike 

[Dweller]

On 27/07/2023 at 22:22, HousePriceTooHigh said:

We could well have another round of inflation this winter.... bad harvests due to weather, energy prices up again.......................... 7-8% next year still very possible

The government as you know have just delayed AGAIN the implementation of the full border with the EU because it will be inflationary but that is going to happen at some point 

[The Angry Capitalist]

1 hour ago, Maghull Mike said:

Quite interesting, Luke Gromen thinks the FED will be forced to cut rates & QE in 2025............i don't think so.

They need to give their "Fiat" ($) some back bone .......They might revalue GOLD, but am not sure...........its even possible that they cut a deal, but given how they broken just about EVERY deal they made with EVERYONE then that looks unlikely.

 

My personal view, for what its worth is that the USA will carry forth its plan. Use Canada/Mexico to "circle the wagons" ......Europe will totally blitzed (again). They do business with the Global South via supporting their "Fiat" with high rates........they fully aware which way things are going, but will "pretend & extend"......keeping the $ as the major currency in world trade for as long as they can.

 

Mike 

Yes.

Groman is smart but I think he is off the trail with that thought process.

Many think the Fed will fold and restart QE and control rates.

What those many don't realise is that if they do there is a real high risk the currencies will go into hyperinflation or a crack up boom.

The fact that they have raised from 0.25% to over 5% in less than 18 months tells you all you need to know about them being in panic mode.

Central Banks/The establishment think that will be enough to take rates to 6% ish and that will do.

It won't. But if they have to go to double figures to save the currencies then they will.

It might be a shock to them when SHTF but then when you create trillions in new currency over 10 years then bad things happen.

[Dreamcasting]

7 minutes ago, The Angry Capitalist said:

Yes.

Groman is smart but I think he is off the trail with that thought process.

Many think the Fed will fold and restart QE and control rates.

What those many don't realise is that if they do there is a real high risk the currencies will go into hyperinflation or a crack up boom.

The fact that they have raised from 0.25% to over 5% in less than 18 months tells you all you need to know about them being in panic mode.

Central Banks/The establishment think that will be enough to take rates to 6% ish and that will do.

It won't. But if they have to go to double figures to save the currencies then they will.

It might be a shock to them when SHTF but then when you create trillions in new currency over 10 years then bad things happen.

I agree. Why would they raise rates across 18 months for them to all of a sudden cut them? Ain't gonna happen.

Also, the inflation figures in the US are a lie. The Fed knows it, and most of all the US consumer does.

Edited August 5, 2023 by Dreamcasting

[The Angry Capitalist]

2 minutes ago, Dreamcasting said:

I agree. Why would they raise rates across 18 months for them to all of a sudden cut them? Ain't gonna happen.

Also, the inflation figures in the US are a lie. The Fed knows it, and most of all the US consumer does.

Definitely a big lie.

Food prices have almost doubled there. Don't know how they are getting away with that, really.

[Maghull Mike]

35 minutes ago, The Angry Capitalist said:

Yes.

Groman is smart but I think he is off the trail with that thought process.

Many think the Fed will fold and restart QE and control rates.

What those many don't realise is that if they do there is a real high risk the currencies will go into hyperinflation or a crack up boom.

The fact that they have raised from 0.25% to over 5% in less than 18 months tells you all you need to know about them being in panic mode.

Central Banks/The establishment think that will be enough to take rates to 6% ish and that will do.

It won't. But if they have to go to double figures to save the currencies then they will.

It might be a shock to them when SHTF but then when you create trillions in new currency over 10 years then bad things happen.

The "Shock" was when the WEST turned to the rest of the World & found that the rest of the World does not need them!

VW has just dumped ALL R+D on new EV platforms & is buying ones made in China. Toyota already does & BMW will from 2024. China it seems CAN make high tec chips (we know for sure very soon) & might even have a lead over the WEST.

Where China has a MEGA lead over the west is in Battery production, its leaving them DEAD.

May be if Toyota's much fabled Solid state battery (+500 wh/kg) does appear sometime it might tip the scale back but don't hold your breath.

The point i am trying to make is the "West" is NOT the World........they dislike the way the west has raped them over the years & they are now going to want REAL payment (something for something, not worthless "fiat")........as Peter Schiff said 15 years ago, they going to allow their currency to rise & their own people will be able to afford their own goods & services.

Mike

[Up the spout]

On 27/07/2023 at 22:22, HousePriceTooHigh said:

We could well have another round of inflation this winter.... bad harvests due to weather, energy prices up again.......................... 7-8% next year still very possible

About time for disruption in the middle east to scare up oil, they've been quite for a while which is suspect. 

[Maghull Mike]

2 minutes ago, Up the spout said:

About time for disruption in the middle east to scare up oil, they've been quite for a while which is suspect. 

Yes, its coming (the 3rd Oil crisis)

Mike

[scottbeard]

58 minutes ago, The Angry Capitalist said:

Definitely a big lie.

Food prices have almost doubled there. Don't know how they are getting away with that, really.

But food is only a tiny part of spending for most Americans?  So doubling food combined with falling energy can still lead to the figures you see published.

[Data Dave]

3 hours ago, Roman Roady said:

What did these charts look like a year ago?