A Strong Economy & Rumors of a Recession

Video Transcript:

Hi everybody, it's rob.

I've got a quick message for you today that you might have seen. The feds just cut short term interest rates by 1/4 (quarter) of a point. You might be asking yourself…

  • What does it matter to me?

  • How does that affect me?

  • How does that affect my mortgage interest rate?

  • ‘I'm in the process of buying/refinancing my home’ what does that mean

There is very little correlation between the short term interest rates, which is what the fed just cut, and long term interest rates; but there are some signals that are being sent and I want to share with you what those signals mean.

First, there is a trailing affect that occurs because of those signals. From there, it’s important to realize that the Fed is cutting short term interest rates because they're nervous. They are nervous about the trade war, they want to keep this expansion going, and that is one of the levers that they have.

Look at the economy right now… unemployment is really low in the US and you've got low inflation. So, what is it that's spooking them? It's this looming trade war and it's already affecting corporations across the country. They were nervous about this which led them to the cut the short term interest rates and that means essentially nothing for the long term interest rates at this point in time. Over the next week or 2 your long term interest rates might flow down just a tad because that seems to be the trend. It has more to do with confidence in the market place though. When there's a lack of confidence in the marketplace, people flocked to safety and they start buying treasuries and they start buying bonds, so when that occurs you start seeing long term interest rates come down.

There was, however, something in all the articles that I was reading today that got me a little bit spooked. I need to do some more research, but it was that the cash liquidity in the market had really dried up. Short term interest rates spiked the 10 (ten) percent and the government had to come in and infuse cash into the system. The last time I heard of that happening was during the crisis in 2008. I'm sure over the next couple days we're gonna be reading articles about what it actually means and what signals that’s sending. It's just something to be paying attention to and something to be vigilant of.

I was talking to a buddy of mine about the yield curve inversion. He said, “historically, when that you'll curve inverts, it's a signal that there is a looming recession on the horizon. On average, it’s around 18 months out. Some were really fast and happen in 5 or 6 months after that inversion while others were 36 months out.” So, we just need to be vigilant right now.

Here’s what I can tell you about our area:

  • Strong employment

  • Low inflation

  • Low inventory (there's about a month in every market right now)

Everything looks good here locally, and all real estate is local. I was looking at some of the data in Vegas and looks very different than than our data here in northern Virginia. We're in a very strong market right here in Northern Virginia.

I just wanted to make sure that I communicated all of that to you. In the end, hopefully that makes you a little bit smarter or at least encourages you to go out and do a little bit more research yourself… where we are in our economic cycle as well as how short term interest rates affect you versus long term interest rates. It matters and I hope I was able to make you a tad bit smarter. I hope that I bring you value in these in these videos.

As always, make it a great day!