July 2022 | Vibrance Wealth Management

July 2022

Recently mortgage rates jumped after the Federal Reserve took actions to raise the interest rate. Most people think rates go up because of The Federal Reserve’s actions. Or some look at the yield of 10-year Treasury bond to determine the mortgage rates. Contrary to popular belief, mortgage rates are not directly tied to the 10-year Treasury bond. Sometimes the Fed rate and mortgage rates go in tandem, sometimes they don’t. The Fed doesn’t set the mortgage rates, but financial institutions such as banks do. Those institutions take the Fed rate into consideration because the Fed sets the rate at which when they borrow between each other. There are many other factors determining mortgage rates. The demand and supply of mortgage bonds and mortgage-backed securities (MBS) also play a major role. With a possible recession looming, the MBS market has been volatile causing mortgage rate volatility. We believe that the mortgage will come down after the rate volatility calms.

Full story: NextAdvisor

Recently, the topic of an imminent recession is prevalent. We believe there are early signs of recession. Our last recession happened in April 2020 when COVID-19 hit. It lasted for two months. Prior to that, it happened from December 2007 to June 2009, about 18 months. There are quite a lot of recession indicators. Yield curve inversion is the most commonly used method to gauge the possibility of a recession. The yield curve tells how much investors are earning from short-term and long-term bonds, usually referring to the US Treasuries. In a healthy economy, the yield curve steepens meaning investors get more yield when investing in longer-term bonds. If the yield curve inverts, short-term bond yield is higher than the long-term. It means investors are pessimistic about the future of the economy.

Many experts think that the best thing to watch is the 3 month yield relative to the 10 year yield which has not inverted yet, but the spread is narrowing and close to zero. Yield curve inversion tends to lead recessions by about 6-18 months. All recessions in history have been followed by an inverted yield curve, but not all inverted yield curves predict recessions. With uncertainties and continued market volatility, the best strategy is to stay diversified and have a dollar-cost-averaging plan to keep invested. We are very resilient and will survive from market corrections and recessions like we did before.

Full story: Reuters

The Dollar has been strengthening since early 2021 and is at a 20-year high. This has been fueled by currency devaluation by other countries, recent Fed interest rate hikes and the dollar acting as a safe heaven because of the market correction. Currencies could not be sustainably high for an extended period of time because they affect imports and exports in the global economy. If a recession happens, the dollar will need to be depreciated in order to get global market share to grow. If any countries want to increase GDP such as by increasing exports, they may want to devaluate their currencies. To hedge against the dollar weakening, diversifying into asset classes such as equites outside the US and gold will be good strategies.

Full story: The New York Times

The recent boom of the housing market in California comes with higher property tax bills. Thanks to Proposition 13 in California, it limits property taxes to no more than 1% of full assessed value when the property is purchased (plus any additional rates approved by local voters, such as general obligation bonds). Annual increases in assessed value are capped at 2% or the percentage growth in the state’s Consumer Price Index (CPI), whichever is less. Property taxes can become a major expense next to medical expenses in your retirement. It will not go away even if you have paid off your house. There are methods to lowering your property tax, such as taking advantage of Proposition 19, applying for a Homeowners' Property Tax Exemption, filing assessment appeals, and downsizing to other states with lower property taxes and housing prices.