Tuesday, November 30, 2021

We’ve all seen it happen in the local grocery or toy store. It starts off relatively mild, with a child grabbing a few things as they scurry up and down the aisles. Harmless at first, even a little cute to see what they start collecting. Then there is a tipping point where the parent says, “NO MORE” to another “must-have” item, and then it happens…

The child, who was otherwise cooperating with the shopping experience thus far, realizes their spree is about to end. They will have no such thing. Their voice gets louder and louder as they fully understand their parent will do almost anything to get them to stop their tantrum. Many of the people watching are smiling on the inside, relieved that it isn’t one of their children pulling the same stunt this time around. You can’t help but be fixated watching to see how the situation unfolds. The good old-fashioned temper tantrum begins!

I bring this up not to poke fun at novice parenting skills, as we’ve all been there in different ways. Rather I’m sounding the alarm to get the people ready for what might be another market “Taper Tantrum” in the making. According to Investopedia, the phrase taper tantrum describes the 2013 surge in U.S. Treasury yields, resulting from the Federal Reserve’s (The Fed) announcement of future tapering of its policy of quantitative easing.

To bail out the banks and bond markets after the housing crash and great recession in 2008-2009, The Fed created a “Quantitative Easing” program that printed money to artificially keep rates low, helping pump money into the primary markets. In 2013, The Fed announced that it would be scaling back the pace of its purchases of Treasury bonds to reduce the amount of money it was feeding into the economy. Bond yields spiked in reaction to the announcement, which was coined a “taper tantrum” in financial media.

Fast forward, less than a decade later, The Fed was back at the printing press buying $120 billion a month in government-backed bonds in a bid to steady the economy after the hit from the 2020 covid pandemic. According to a published report last month by the Federal Reserve Bank of New York, The Fed’s balance sheet ballooned from $4.3 trillion in March 2020 to $8.5 trillion by September 2021.

With markets panicking about the quick rise in inflation, The Fed was being pressured to act. Last week, at their November F.O.M.C. meeting, The Fed announced they would immediately begin tapering its bond purchases this month at a rate of $15B. At the same time, they did note that they are prepared to adjust the pace of purchases if warranted by changes in the economic outlook. With The Fed stepping away from buying bonds and treasuries, interest rates have already increased by 30-50 basis points, and projections from top analysts see rates close to 4% by the end of 2022.

Will we see a Taper Tantrum this time? It’s too soon to tell. But there are stark contrasts between the two cycles, which I think will significantly impact home prices and interest rates. That said, I do believe inflation is on the rise, and this move is long overdue. What would you do if you were in the store and your kid was eating every box of high sugar junk as you tried exiting the store with your needed essentials?! More importantly, what would you do if you got so used to having low rates and suddenly they said, “No more!?”

Shout out and Happy Birthday to Zev Brenner, Aliza Bochner, Dr. Jonathan Feder, Kim Fuld, Dr. Yosef Fox, Adam Geisler, Miriam Manson, Jeff Mendelson, Judah Orlinsky, Gabriel Posner, Dovid Schild, Judy Schmutter, Dr. Ruth Miron-Schleider, David Vegh and Dovid Weisberg

Shmuel Shayowitz (N.M.L.S. #19871) is president and chief lending officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct F.H.A. specialized underwriter. He can be reached via email at [email protected]

Sign up now!