What Now With Mortgage Rates?

RatesAs I am sure you already know, we are continuing to get hammered in the Bond Market, pushing mortgage rates higher. The 10 year Treasury (a good proxy for the direction of mortgage rates) is now up to 2.25%, which is the same level as we last saw on December 28, 2015. I wish I could tell you when this would end, but clearly we are in uncharted waters and I have no history to rely upon.

However, a market watcher that I follow says – “I can tell you that I FIRMLY believe this is temporary and we will see a massive correction in either the days or weeks to follow.”

If you remember last December, the Fed increased short term rates by .25% and we saw a reduction in mortgage rates over the next few months into 2016.  On December 13-14 of this year, the next Federal Reserve meeting is scheduled and the market is expecting another .25% increase in short term rates.  This is will the Prime Rate and any home equity line indexed to Prime up by .25%, but it will not directly impact mortgage rates.  Indirectly however, we could see mortgage rates improve as a result as happened last year.

The economy is still fragile. Personal savings are lower than we’ve seen in many years, consumer credit is higher than we’ve seen and Job growth is still weak. Rates are highly unlikely to remain high without firm economic data that will keep them high. We don’t have that right now, and all we have are assumptions about growth that a Trump Presidency may bring us. I don’t see that right now. While his administration most likely will drive growth and that growth may drive inflation, it will take months if not years to see those results. Just as we gave back the Brexit gains, I believe we will reclaim a good deal of the Trump losses.  See chart of the 30 Year Fannie Mae Mortgage Bonds below – my yellow line is the election day – and you can see around 225 basis points in price since the election.  Translated – this means that conforming 30 year fixed rates have moved from the 3.50%-3.625% range to the 4.00%-4.125% range in less than a week.

rate-chart

I will say that although rates will most likely recover in the short term, we may not see the lows we saw in 2016 over a sustained period of time. This is not a bad thing as growth is good for everyone and a thriving economy will drive a more robust housing market than most of us can imagine right now.

If you would like to discuss your client’s situation, please contact me directly.  I’d be happy to help.

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