Interest Rates, Post-Election

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We’ve seen some volatility in mortgage interest rates since the presidential election. When Freddie Mac released the fixed and adjustable rates on Thursday, November 17th, they had gone up considerably. 30-year fixed rate mortgages jumped from 3.57% the week before to 3.94%. 15-year fixed rate mortgages climbed from 2.88% to 3.14%. 5-year adjustable rate mortgages followed suit, jumping from 2.88% to 3.07%.

However, we need to keep things in perspective. At this time a year ago, 30-year fixed rate mortgages were 3.97%.

When the Federal Reserve meets December 14th, it would not be surprising to see an increase in short-term rates. It’s projected they will increase them a quarter of an interest point at this meeting. If the Federal Reserve does move forward with a rate increase, there’s talk of slowly increasing mortgage rates to follow. The uptrend is expected to be modest, until we see stronger inflation, or until the Fed decided to move the 10-year Treasury Bond Rate closer to a “norm” of 3%.

On November 11th, Kiplinger mentioned in their Economic Forecast for 2017 that they projected the 10-year Treasury Bond Rate would remain at 2.1%, until the end of 2016. However, this past week we saw it rise to 2.34%. Erin Lantz, vice president of mortgages for Zillow Group, is quoted as saying, “There is a flight to safety of assets outside the U.S.,” in response to the jump in yields for the 10-year Treasury Bonds.  Kiplinger had projected in their economic forecast we should see the 10-year Treasury note yielding around 2.5 by the end of 2017, with the average 30-year fixed rate mortgage moving upward toward 4.3%, and 15-year fixed rates around 3.6%. These are economic indicators we will need to monitor closely in upcoming days.

Until we know more know about the policy proposals President-Elect Trump will bring to the table, there may be a sustained increase level of uncertainty mirrored in interest rate levels. Erin Lantz stressed patience for home buyers, “Consumers considering buying or refinancing now should stay patient, as we’ll likely see rates stabilize once markets find a new equilibrium.”  Freddie Mac’s chief economist, Sean Becketti, surmised that those who were waiting to see what interest rates were going to do will jump off the fence, under certain circumstances, “If rates stick at these levels, expect a final burst of home sales and refinances as ‘fence sitters’ try to beat further increases, then a marked slowdown in housing activity.”

The Wall Street Journal surveyed 57 economists between November 9th and 11th, asking for their forecast for 2017 and beyond. The average forecasts delivered by this group for growth, inflation and interest rates – in both 2017 and 2018 – all reported slight upward movement, when compared to their survey responses given before the election in October. Many of the responding economists added the caveat that their estimates were tentative. “Anyone who tells you they absolutely know what will happen under a Trump presidency is probably lying,” said Megan Greene, chief economist at Manulife Asset Management. There is definite concern regarding White House missteps, and the potential for trade wars to erupt. A number of economists continue to worry about a decline in business investment. Robert Dietz, chief economist at the National Association of Home Builders shared, “Uncertainty on major policy issues limits hiring and investment decisions.” Across the board, however, the economist respondents to the WSJ survey estimate about a 1 in 5 chance of dipping into recession within the next 12 months. These replies are a slight decline when compared to data collected over the past three months, but are up from 14% a year ago.

We’ll have to be patient, as Erin Lantz suggested, until we see more concrete policy language from the Trump transition team. Continue to keep in mind how low our interest rates are now – they are historically low, and on par year-over-year. If you have any questions regarding interest rates, and the current state of our housing market, let’s schedule a time to talk. Please email me at marianne@windermere.com.

photo credit: pixabay

Posted on November 22, 2016 at 1:32 pm
Marianne Parks | Category: Economic Trends | Tagged , , , , , , ,

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