Presidential elections and mortgages.
Market investors, before a Presidential election, hedge which candidate they think will win. This year, the market investors hedged a Clinton win with the Republicans to maintain the House of Representatives. What is the reaction with a Trump win? Investors react in a way that is typically not favorable for mortgage interest rates. Why is that the case?
Predictability is key for investors.
Investors in the stock market and bond market love predictability. They can handle both the good and the bad as long as it can be predicted. For example, the election results did not turn out predictably in 2016. In my opinion, I think the following will happen. (note: these views do not reflect the views of PrimeLending nor Plains Capital Bank):
A Trump win surprised all pundits and pollsters. As soon as the results were posted, we saw the Asian stock markets sell off and the Dow futures dropped 400 points. Next, the Nov 9th opening bell hit, the Dow, NASDAQ and NYSE all opened a tad higher than the Election Tuesday close. Many investors did not expect that. Flipping over to bonds, we saw the yields worsen immediately. Rates increased by almost 0.5%. By the time you are reading this, the markets should have settled down. So, what’s next?
How is the Fed affected?
Additionally, we turn to the December Federal Reserve Open Market Committee meeting in mid-December where a 0.25% rate hike is on the table and is expected. For consumers, the prime rate is affected which will affect HELOC’s and construction rates. That being said, the country is not out of the ditch and inflation is below the Fed’s target of 2%. Consequently, I think the Fed may punt any decision into 2017 and gauge how the markets react to Trump’s swearing in and cabinet decisions. Also, they will keep a close eye on holiday spending and any business sentiment. Furthermore, for long-term rates (i.e. mortgages), we still see them around the current 3.5% to 4% range (30yr fixed) into to 2017.
What does a new President mean?
I don’t know really know. Business as usual? Probably. Rates still good? Definitely. I do say the time to refinance or to remodel via refinance is now. Buying real estate, perhaps and investment property? I like December: less buyers and eager sellers. Remember, opportunity exists when others are looking elsewhere. Contact me now to start planning your home financing strategy.