Welcome back to work! I hope everyone had a great Thanksgiving. Mortgage rates continue on the upward trajectory they’ve taken since the U.S. Presidential election. Last week’s Primary Mortgage Market Survey from Freddie Mac showed the average rate on a 30-year fixed rate mortgage to be 4.03% with 0.5 points, the highest rate since early 2015. I don’t want to say that the refinance window is shut, but it is closing rapidly. Yields on 10-year Treasuries bottomed out following the Brexit vote earlier this summer, falling as low as 1.32%. Prior to the election, yields were around 1.80%. This morning, yields are floating around 2.32%. The sell-off appears to be premised on the idea that President Elect Trump will pursue policies that deregulate financial industries (amongst others), cut taxes, and simultaneously pursue large spending projects. Add into this mix that the Fed may need to tighten policy much more quickly than anticipated in order to head off potential inflation from the aforementioned policies, and you have a bond bloodbath. More on where things go from here after the jump.
Click here to get today’s latest mortgage rates.
The rate outlook:
Where to begin…
Here are some of the primary factors that will drive the markets this week:
- This week’s economic data includes several measures of inflation, the second estimate of 3rd quarter GDP, and the November jobs report. We may see the market shift with the individual releases, but probably not a tremendous amount. They are important because they will inform us as to what the Fed may need to do (and how quickly they may need to do it).
- As to the Fed, it’s all but assured that there will be a rate hike in December. Presently the implied odds of a hike as derived from Fed Fund futures prices is nearly 96%. Some portion of the recent bond sell-off can be attributed to the market pricing in this hike. What is less clear is how many hikes we will see next year. Fed Chair Janet Yellen came out a few weeks ago as saying that Trump’s proposals could fuel inflation. With inflation approaching 2% and unemployment sitting around 5%. the Fed is close to fulfilling its mandates. The market has likely priced in an additional hike or two next year, but if the Fed feels the need to get out ahead of what they believe to be inflationary policies, we could well see additional hikes next year. And those hikes are not priced in.
- U.S. politics: in addition to Trump’s proposed policies, we now have several recounts underway. The President Elect responded via Twitter that “[he] won the popular vote if you deduct the millions of people who voted illegally.” No evidence supporting this claim was produced. I suppose these recounts could have some market impact if anything were to materially change, the odds of which are infinitesimal. When a situation requires a really futile and stupid gesture, the Green Party are just the ones to do it.
- Foreign politics: populism and nationalism are on the rise across the globe. There are elections in several European countries in the next year where nationalist/populist parties are serious contenders to take power, including France and Germany (of course nothing bad ever happened due to nationalist sentiment in Europe). The next referendum is in Italy, You can read some of the details here, but in a nutshell, there is the possibility that the outcome could have Italy leaving the Euro, and the results could roil the markets. It’s something to keep an eye on. Somehow we find ourselves with Angela Merkel and Germany being in the position to potentially be the defenders of liberalism in Europe. Interesting times.
Where does all this leave us? In the very near-term, it’s anyone’s guess. In the longer term, it seems highly likely that interest rates will rise if the President Elect manages to put his policies in place.
If you want to refinance your existing mortgage, you should probably do so quickly. If you’re buying a house, you’re probably less sensitive to rates, but be aware of the upward trajectory rates are on.
It’s time to see if you can save money. Contact us now.
from Total Mortgage Underwritings Blog http://ift.tt/2fIPfRC
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