Weekly Rate & Market Update 11-11-16
Question: Now what?
Answer: A question a lot of people have been asking this week in many sectors, and one I have had asked several times on Wednesday and Thursday. Now that the election is over and Donald Trump is President-elect, what are the expectations for the mortgage industry?
Three weeks ago I answered the question, “what impact will the election have on interest rates?” The short term of two days of open markets has shown the first part of my answer to be wrong, “no matter who is elected the impact on interest rates will be about the same, that is to say negligible.” On Wednesday the markets opened, ran through the day and closed, then opened on Thursday, ran and closed, exactly opposite of the expectations of myself and many others. The common wisdom that was a Trump victory would insert uncertainty in the markets. Markets do not like uncertainty and what normally happens is money flows from equities (stocks) to “safe harbor” investments—bonds and mortgages.
As the result of the election became apparent on Tuesday evening the futures market was follow the historical pattern of forecasted uncertainty as stock prices plummeted in overnight trading. This garnered well for mortgage rates as the expectation was that money would flow into Mortgage Backed Securities (MBS) raising prices—which lower rates.
When the equity markets opened on Wednesday they were almost flat from Tuesday’s close—surprising many after the overnight trading. And then pow—they started climbing rapidly approaching all-time highs. The ride up continued on Thursday and have been flat.
While the equity markets were jumping up the bond markets were falling down, rapidly and steeply. Looking at the charts the drop in MBS prices on Wednesday were the largest in one day in over several years, the increase in rates from last Friday to this are the largest since last June when rates jumped on expectations for the Fed to raise interest rates—which they did six months later.
Back to our question, now what? While short term my assessment was 100% backwards, long term I still feel confident in my expectations for rates to not move very much. It will take drift back down—many of you have heard me say for years rates go up on a rocket and come down on a balloon—but economic data supports low mortgage rates.
As for economic policy we will need to wait and see what is hammered out between the Trump Administration and the new Congress beginning in January. Expectations are for lower tax rates and unwinding some/many of the regulations put on various industries during the Obama Administration. Whether those will come to pass and their long term effect on the economy will certainly impact mortgage rates, however there is tremendous lag time between initiating policy, getting anything through the legislative process, implementing the policy and then the impact that any policy changes may have on the economy.
While waiting for the slow wheels of government the economy has its own momentum, or lack of momentum as is the case as I see it. As I mentioned in my Weekly Rate & Market Update three weeks ago, I feel we will enter a period of recession late 2nd Quarter or early 3rd Quarter in 2017—well before any impact of policies put into place by the new slew of officials in Washington.
Now what? Even with the bump in rates this week they are still extremely low and a bright spot for home buyers could be a lull in the market presenting some soft targets for sellers who are in a need to sell for whatever reason and suddenly seeing a reduction of buyers in the market. You may pay a bit more in rate than a week ago but possibly could pay a bit less in home price.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Any economic data was overshadowed, actually ignored, by the election. One bit of data is new unemployment filings are flat at around 250-270,000 range which indicates pretty steady employment for those who have it. This data supports the increase in rates from the Fed in early December.
Rates for Friday November 11, 2016: We covered rates above. Cautiously optimistic for rates to drift back down in the future, however when and for how long are uncertain.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.625% Up 0.25%
30 year high-balance conforming 3.875% Up 0.375%
30 year FHA 3.125% Up 0.375%
30 year FHA high-balance 3.625% Up 0.375%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down (3.5% for FHA) with 740 FICO score for purchase mortgages.
For those reading this who are Veteran’s thank you for your service and commitment to our nation and defending our liberties. It is my hope that one of the first acts of our new President and Congress will be legislation to improve veteran’s benefits, particularly for healthcare—both physical and mental.
Have a great week,
Dennis
