Today's Scoop:

Hey friends - Happy hump day 🐪🐪

Here’s what you need to know today…

1. Mortgage rates keep rising and deterring buyers.

2. High mortgage rates are also keeping sellers on the sideline.

3. There’s still no deal on the debt ceiling.

S&P 500: 4,115.24
1Mo: +1% | 1Yr: +3% | 5Yr: +51%

The market inched lower today as investors sifted through a bunch of mixed messages from corporate financial reports.

Rising mortgage rates are deterring home buyers. The Mortgage Bankers Association reported a 4% drop last week in new home purchase applications, now down 30% from a year ago. The average 30-year mortgage rate is down from its 7% peak but has started climbing again, now 6.7%. [🤓]

High mortgage rates are also keeping sellers on the sidelines. Homeowners are reluctant to give up their existing low-rate mortgages. Homebuilder Toll Brothers said roughly 35% of homes currently for sale are newly constructed, more than double the historical proportion.

President Biden and House Speaker McCarthy still have not negotiated a deal to raise the limit on the country’s borrowing. Treasury Secretary Yellen warned the country could run out of money by June 1st, and any deal would still have to be approved by the House and Senate, who are about to break for Memorial Day Weekend. The negotiations seem to be focused on cutting non-defense discretionary spending - things like education, environmental protection, domestic law enforcement, and civilian infrastructure that make up less than 15% of the budget. The White House says cuts there would impact those programs significantly but not have a huge impact overall. There doesn’t seem to be any discussion of higher taxes, cutting defense spending, or addressing the biggest growing spending categories: medicare and social security.

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Mortgage Rates

Mortgage rates can be fixed or floating. A fixed-rate means you've locked in that percentage of the loan you need to pay back in interest each month, and it won't increase. A floating rate is usually tied to the movement of a benchmark interest rate. So as broader interest rates rise, your rate increases, and you pay more each month.

Whether fixed or floating, banks determine their mortgage rates by taking a baseline low-risk lending rate like US Treasury bonds, then marking it up based on how risky you are as a borrower. So banks say, "OK, we can lend to the US Government (considered no default risk) for ten years at 4% interest. You're more likely to default than the US Government, so you must pay us higher interest to make it worth the risk, maybe 7%. As baseline rates rise, your rates rise.

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Here’s something to consider for today’s challenges:

Hidden Opportunities: Down markets are a good time to hunt for bargains if you have the savings. We’ve found a lot of success from Motley Fool’s stock picks.

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