Are these Rates the New Normal?

Market Position: Conflicted and Volatile

Our Suggestion: Rates are steadily increasing… take advantage while you can!

It's been a while since anyone could say that top tier conventional conforming 30-yr fixed mortgage rates were in the range of 4%. And even just before the election, the thought of rates in the ballpark of 4% seemed outrageous. A week has made all the difference!

What’s going on?

Per Time.com: “Donald Trump has not yet assumed power, but the bond market is already taking notice. Ten year Treasury yields have shot up from 1.8% before the vote to 2.1% — the highest level in nearly a year, after their substantial drop in after-hours trading after Tuesday’s election results came in.

Fixed income yields move in the opposite direction of bond prices. So rising yields mean that investors are selling bonds fast. A lot of that money appears to be heading into the stock market, as the Dow gained 250 points (on November 14) and jumped 127 points in early trading on (November 15) .” (3)

“Before Trump’s victory, inflation was already on the rise, with consumer prices forecast to grow 2.3%, nearly double this year’s pace, according to the Blue Chip Economic Indicators survey. Even higher inflationary pressures typically bring on expectations of Federal Reserve interest hikes.” (3)

Most economists predicted that the Fed would raise short-term interest rates for months. These rate increases have not been finalized, but most experts believe that the Fed meeting in December will still end in a rate hike.

What does this mean for me?

Technically, these rates are still near historic lows, but we’ve seen rates move consistently upwards these past few business days. This has only occurred a handful of times in the past and, therefore, is causing some rightful confusion!

The election was clearly a larger than expected catalyst. This combined with the Fed’s upcoming decisions, the uncertainty of President-elect Trump’s plans, market momentum, and other long-term factors all lead to a simple truth: The coming weeks and months will be volatile!

So what do we suggest?

We recommend our referral partners and clients remain cautious. As Mortgage News Daily sums up the current market environment review (1): “More often than not, a big rate spike on any given day results in greater-than-average chances of a bounce back toward lower rates--even if only temporarily. Moves like this break the mold though. The price of incorrectly timing the top in rates is much steeper than normal as these sorts of moves can often result in rates 'leveling-off' as they settle into a new, higher reality…. Important Considerations

• Rates have generally been trending higher since hitting all-time lows in early July and have grown significantly following the presidential election

• Clearly-defined uptrends provide higher-than-average motivation to lock, especially when the pace of rising rates accelerates quickly

• Risk-tolerant borrowers can try to time the dips in rates that may occur during that broader uptrend, but the reward for good timing generally isn’t worth the risk in these situations

• We’d need to see a sustained push back toward lower rates before anything less than a cautious, lock-biased approach makes sense for all but the most risk-tolerant borrowers.”

Our recommendation is to take advantage of today’s rates while you can. They are still low compared to what they may be in the coming months!

Sources:

• http://www.mortgagenewsdaily.com/consumer_rates/678888.aspx (1)

• http://www.mortgagenewsdaily.com/mortgage_rates/blog/678656.aspx (2)

• http://time.com/money/4566130/president-trump-interest-rates-federal-reserve/?xid=emailshare (3)

#news #rates #election