I’ve been receiving a good number of questions from both buyers and agents regarding the movement in interest rates. Many have been asking why the relatively big increase over such a short time frame and what does the future hold?
I’ll try to give a brief synopsis and link to a few articles for those who want to take a deeper dive.
In essence, worries about higher inflation have been a main factor fueling the big bond market selloffs (which brings mortgage rates up) over the past month. The process accelerated after the U.S. election in early November. The reason: investors have bet that the prospect of expansive fiscal and economy policy from the new U.S. administration would lead to stronger growth and higher inflation.
Secondly, the Federal Reserve has strongly hinted that it will raise interest rates next week. Economic growth remains slow and steady, and inflation measures are relatively non-existent – but Fed officials are increasingly convinced that things are now good enough.
Their concerns about moving too soon are giving way to worries about waiting too long, and the possible inflationary pressures that come along with it.
The Fed would rather err on the side of caution rather then risk inflation.
Many argue that the more-than-likely rate increase is actually priced into the current market – and it was the election that brought it into focus sooner rather than later.
Here’s a look at the 10-year treasury yield (a very good directional marker to interest rates) over the last 6 months:
Notice that yields are nearly a full point higher that the summer lows.
Does that mean you missed the boat if you didn’t act in October? Hardly.
I wouldn’t be surprised to see rates continue to tick upward over the next 30 days, but I believe things will begin to normalize in 2017. As mentioned earlier, upward inflationary measures are not really there.
More importantly, when you look at mortgage rates right now versus historical averages, we are still WAY below the norms. This is really a great time to buy and borrow.
Here’s a funny story that can give some perspective on the current situation. When I married by beautiful bride nearly 25 years ago, I got an absolutely smoking deal on a loan for our condo. It really was unheard of at the time. The rate….9.5%. That’s right, anything under 10% back then was considered a steal.
Min Zeng from the Wall St. Journal does a fine job of analyzing the situation here
Binyamin Appelbaum and Kevin Granville of the New York Times talk about the upcoming interest rate increase here
The views expressed are my own and do not necessarily reflect those of American Financial Network, Inc