This has been quite a year for mortgage rates – both up and down! Great Britain voted to leave the European Union, global markets were in turmoil and then the US election in November. There were analysts that thought rates would drop even more if a republican won the election. The prediction was the stock market to drop and then mortgage rates would follow and drop even lower. With a republican winning the election, it would be something different, markets wouldn't know what to expect and investors would move to the treasury, a safe haven.
Instead the stock market took off and mortgage rates jumped to a seven month high! There are several things in play now for rates to continue to increase – how much, no one knows for sure. First of all, in December the Fed meets and is expected to raise rates. The economy is doing fairly well, unemployment is near 5%, it's lowest level in several years. Inflation has been in check but there are signs that it may be more of a concern. If the Fed raises rates, it could slow inflation.
Investors are watching inflation also. Employment numbers are showing employee wages are rising faster than any time since 2009. As wages increase, prices for goods and services will also have to increase. Investors tend to shy away from bonds when inflation is higher. This means rates must increase to keep inflation in check.
The last piece is the unexpected administration. Investors are always trying to predict the future. With a new administration, investors are not sure of the direction and so it's harder to predict the future. The predictions at this point are not rate friendly. The stock market is up, that does not help interest rates. The prediction of more defense and infrastructure spending is also not rate friendly – that typically means bond sales and if there are more bond sales, rates have to increase to make the bonds more attractive to buyers.
All this means at this point, lower rates are probably not likely. However no one knows for sure. The only thing we do know is where rates are today and where they were yesterday. The market definitely took a hit this past week, it has been stabilizing a bit the last couple of days. In reality, interest rates are still great – just a bit higher than prior to the election. I remember thinking rates would have been over 5% a year ago and that has not happened yet. I also remember years ago when we never thought we would see rates as low as 4 or 5%. If you are thinking about buying a home, rates are still great – I would look to buy sooner than later based on the last week. If you are thinking about refinancing, rates are still great – check and see if it makes sense for you to refinance. Even if rates stay close to 4%, they are still fantastic compared to many years in the past! To get an exact rate quote for your situation, contact me or your loan officer.