December 1st, 2016 5:38 PM by Richard T. Cirelli
been a few weeks since the election and you would think that the
financial markets would be settling down. But, so far that does not
seem to be the case.
What Was Expected?
While the election was thought to be close, the financial markets were
clearly expecting a Clinton victory. To the financial guru's, that
meant continued heavy entitlements, higher taxes, low GDP growth, low
inflation and the possibility of a recession in 2017. All of this
led to ultra-low interest rates. Prior to the election, mortgage
rates were around 3.5% for the benchmark 30-year fixed rate
As we all know now, Trump won and, it surprised the market makers.
Now, if Trump's Republican Congress gets their way, we
should see lower taxes - both personal and corporate taxes; no more 3.8%
Obamacare tax; less regulation; and fiscal stimulus that has so far been
absent from the weak recovery over the last eight years.
Based on the above, money quickly moved out bonds, including
Mortgage-Backed Securities, and into US stocks. The move out of
bonds was particularly large with mortgage rates rising .50% or more!
What is Likely to
Was the rise in mortgage rates too much too fast? Was it an
over-reaction? Only time will tell. The Mortgage Bankers
Association of America (MBA) predicts the interest rate for a 30-year
fixed rate mortgage will average 4.2% in 2017, increasing gradually from
this year's average of 3.5%. It also expects the Federal Reserve
will raise the federal funds rate in December and three more times in
also forecast an increase in home-buying in 2017 as due to the potential
for higher home prices and higher rates.
The next Fed meeting is December 14th. They are expected to raise
the Federal Funds Rate by .25%. That is almost a certainty.
My guess is that they won't give any hints about possible future
rate hikes yet. It's just too soon to tell what the Trump Effect
will be despite the optimism over his intentions and a faster-improving
economy. I do think that most of the damage is done for
now. And, maybe it will settle somewhere between the lows just prior
to the election and where they stand for now.
It is important to remember that mortgage rates can and do change daily
and they react instantly to financial news and speculation. The
recent rise in interest rates assumes this already is already happening;
therefore; rates can only rise so far before getting too far ahead of the
Here is a look at the weekly Freddie Mac Survey of
Mortgage Rates this year: