Post-election rate spike will reverse course

By JEFF LAZERSON / CONTRIBUTING COLUMNIST

Rest easy. No need to awfulize. Enjoy your Sunday morning hot cup of joe. The Trump win caught markets off-guard. This created a post-election spike in mortgage rates which are going to simmer right back down in the near term.

At press time Wednesday evening, compared to November 8th, lenders raised their conforming 30-year fixed rates between 0.375 percent and 0.5 percent.

What gives?

“Uncertainty is a piece of it,” said Lynn Fisher, vice president of research and economics at the Mortgage Bankers Association “Tax reform or investment in infrastructure stimulates the economy and helps push up prices, (causing) inflation to pick-up.”

Consumer mortgage rates and fees are derived from mortgage backed securities, which in hand closely mimic the 10-year Treasury rate. For the sake of perspective, the 10-year Treasury topped out on Nov. 15 at 2.23 percent, almost exactly where the 10-year was Nov. 18, 2015, when the rate was 2.27 percent.

The low point on the 10-year in 2016 was July 6 at 1.38 percent. That was less than two weeks after the United Kingdom unexpectedly voted to leave the European Union. When conventional expectations don’t come to pass, mortgage markets have spasms one way or the other and then tend to settle back to where they were.

Fisher said that total residential mortgage funding volume in 2015 was about $1.7 trillion. The MBA projects that 2016 will land at $1.9 trillion. It expects $1.6 trillion in 2017, with purchases climbing 11 percent and refinances falling off.

There is “nothing obvious to keep rates rapidly increasing,” she added.

The silver lining for home sellers is that interest rate events tend to get procrastinating buyers off the fence.

“There is a concentration of buyers that are ready to look because all of the talk that rates are going to go up,” said Candice Blair, broker of Niguel Point Properties.

Comparing a loan amount of $417,000 on a 30-year fixed rate at 3.25 percent of a few weeks ago to today’s rate of 3.75 percent, the mortgage payment increase is $116, or a principal and interest payment of $1,931. Yes, a big jump indeed.

If the Federal Reserve raises rates in December, adjustable rate mortgages will go up a tad.

I’m doubling down. My tea leaves and my crystal ball both show mortgage rates settling back down, at least between now and right after President-elect Trump’s Jan. 20 inauguration. If it were me, I’d float the rate and not lock in until you are cleared to close.

If you have questions or comments, please contact Jeff Lazerson by clicking here.