Interest rates

Goldman Sachs predicts interest rates of 5% by March

Goldman Sachs economists raised their March interest rate forecast by 25 basis points. They predict 75 basis points this week, 50 in December and 25 in February and March. The new forecast is for 5% interest rates by March 2023. Goldman economists gave three reasons why they increased their previous forecast of 4.75%. The reasons given are “uncomfortably high” inflation, the need to cool the economy as fiscal tightening ends and price-adjusted incomes rise, and to avoid a premature easing of financial conditions. The chart shows how the overall market expects interest rates after the March FOMC meeting. Overall, the market indicates that there is about a 32.7% chance that rates will be between 5 and 5.25% after the March FOMC and 80.5% chance that it is at least 4.75%.

Goldman Sachs predicts interest rates of 5% by March

Lodging

Market sentiment on rates is not good news for the cracking housing market. Mortgage rates topped 7% this week. The average 30-year mortgage rate is 7.08%, up from 6.94% last week. A year ago, rates were 3.14%. Redfin reports that home sales and new listings have reached record highs since the start of the pandemic.

Inflation and high interest rates are pushing buyers out of the housing market. Housing rates are the highest in over 20 years and new mortgage applications are down 25%. Refinancing requests are down 86%. Contract signatures fell by 10.2%. The expectation was 5%. 20% of sellers lowered their prices in September. On average, monthly payments are $558 or 40.4% more than at the start of 2022, and it’s about to get worse. If rates increase by 75 basis points, a $350,000 loan will increase from a low of $161.48 per month to $2,882.05 per month. People living in districts with high taxes, high HOAs, high insurance, and less than perfect credit will see more substantial monthly payment increases.

The average American household income is $87,864 or $7,322 per month. Banks have guidelines for mortgage debt-to-income approvals. The general recommendation is 43%, but less than 36% is preferred . 43% of $7,322 is $3,148.46. The current average price of a home is $428,700 (assuming a 20% down payment, $3,500 for taxes, $1,500 for home insurance, and $60 for HOA), which equates to a monthly payment of $2,776.84 per month before rate hikes this week. Most people don’t have $85,740 for a down payment. If Goldman is right, the housing market will be a shipwreck in March. Most people don’t want to move in the winter, so sales naturally drop. Calculations indicate that a substantial pullback in housing is ahead, or that there will be a massive increase in adjustable rate mortgages. Either way, there’s no sugar coating. Housing is falling.

Obligations

When interest rates rise, the prices of previously purchased bonds fall. In 2022, interest rates have increased by 3%, and many bonds fell more than 30% with an average loss of -19.2%. Most analysts believe the Fed will raise interest rates further from 1.25-1.50% to 4.4-4.5% before 2023. If Goldman’s prediction is correct, there will be yet another increase from 1.75 to 2.0% before March 2023. If the trend continues, it is reasonable to expect that at least -11.2% more will be eliminated from the bond market by March. The Fed has been explicit about its intentions to hike rates. There is a mountain of data to show what happens to the bond market when interest rates rise. Unfortunately, most investors will ignore all warnings and pretend their savings aren’t evaporating. Many people will do nothing to save their retirement.

Precious metals

Most people look to precious metals for long-term purchasing power protection, insurance if the dollar goes completely kaput, and a tax-efficient way to pass on wealth to the next generation. For people with these goals, the daily price movements of precious metals are background noise. They tend to buy at regular intervals at the average dollar cost, buying more when the market is favorable. The short term for precious metal prices is uncertain. There are reasons to believe they are climbing and reasons to think they might fall further. Either way, I’m a buyer. The long-term outlook for metals is spectacular.

Interest rates will continue to rise. Paper and housing markets will continue to contract for months, if not years. Former Treasury Secretary Mnuchin said he believes we are in a recession that last until 2024. I know this article may sound like a broken record, as interest rates have been the focus for some time. Consider this article a last-minute warning before Wednesday’s rate announcement. Other difficulties in the market are coming, but you can avoid them.

Why not rebalance your precious metals portfolio to weather the storm? US Gold Bureau experts can help you make a cash purchase or renew your retirement account. How would you feel if you didn’t earn a penny and only protected your purchasing power? Would you like to come throw stones at our building, or would you like to take us to lunch? The alternative is to stay in the paper and stress daily about how high interest rates will go up and your accounts go down.

If you want your wallet to be something different from the world, you have to do something different. The interest rate train is still ahead. He destroyed everything in his path. Even though more destruction is coming, most people still don’t leave the tracks. Do you have something to lose by derailing your wealth? Do you gain anything by keeping it there? There is still time, but we must act.

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