Dear Friends,

How has the recent Election affected interest rates?  A lot of people have been asking what this election means in regards to interest rates, the economical outlook and the economy in general. Regardless of your political view, Most Americans were shocked at the outcome, anticipating that there was no way HRC would NOT win the election.  The Markets also anticipated an HRC win, and thus assumed it was going to be business as usual, ie. continued average growth, continued market movements and everything pretty much the same.

When it was announced that Donald Trump was winning the election on Tuesday night,  the DOW Jones Futures plummeted almost 1,000 points, as anxiety over what TRUMP “might” do versus what everyone believed HRC WOULD do.   This lead to money flowing out of the stock markets into the perceived stability of the bond market.

For those of us in the industry, we thought that was going to be a really big boom for the bond market and thus a corresponding decrease in interest rates.  However, when the markets opened the stock market started to climb and the bond market started to decline.  We assume that people’s anxiety over a trump presidency was replaced with the thought that his conservative economic policies might be a boom for  the economy!   The money started to flow back into the stock market and when that occurred, the Bond markets started getting hammered. From Wednesday after the election to Monday of this week, that trend has continued.  The Bond Markets have lost over $ 1 Trillion in value and has resulted in about 3/8 – 1/2 point increase in interest rates from about a week ago.

What does that look like moving forward? The trend is pretty unknown right now.  Every economist is giving their opinion an ideas on what that could mean. But the general consensus is that we will see rates in the 4%’s for most of next year.  We know that the FED’s are implying that they are raising rates this December.  The market has pretty much taken that into account. As that occurs, interest rates for 15 and 30 year mortgages will continue to increase and hopefully the economy will continue to grow.

Now, that being said, another term for growth is inflation.  When the market is growing, everyone is excited because jobs are increasing, incomes are increasing, home values are increasing.  Basically everything is going up but it also means interest rates will increase as well.  We can anticipate for the next several years interest rates will continue to steadily climb.

It is important to understand that while we all love low interest rates, low interest rates don’t necessary to everyone going out and buying or refinancing their home.  What we know is that buyers will not make an economic decision to buy or sell a house until rate hit 6-6 1/2%.  That means as long as rates are in the 4 – 5% range, while people might be unhappy to pay a higher interest rate, it will not significantly impact their decision to buy or not buy a home.  It will however, affect the size of home they can buy because every point higher on the interest rate will equate to a dollar amount that they may not be able to afford now.  But it won’t make their decision to buy or sell until rates get into the 6% range.

Please give me a call if you would like more information!