People are up in arms (or celebrating) the fact that Donald Trump is the United States president-elect. However, it hasn’t just affected the people; it’s also had a stunning impact on mortgage rates. They’ve spiked since the election results were announced, and they’re continuing to climb.
MBS Movement Following the Election
In the weeks after Trump was elected, MBS (Mortgage-Backed Securities) lost well over 240 points in very short order. Keep in mind that MBS points and mortgage rates move opposite of one another. Whenever MBS prices climb, overall mortgage rates – and the amount of money consumers ultimately pay – go down. However, with MBS falling significantly, mortgage rates are doing the opposite. A 240-point drop is equal to a .5% increase in rates. They’re still going up, and they’re going up quite a bit. As of mid-November, mortgage rates had climbed to the highest they’d been since January of this year.
A Republican-Controlled Government
Traders are aware that the house, senate, and White House are going to be controlled by the republican party come January 2017. While they do feel that this will help boost the economy as Republican presidencies often do, the truth is that stronger economic growth is often met with higher rates of inflation. As of right now, that extra .5% tacked on to the average mortgage rate might not seem like much, but it’s equal to about $1500 a year on a $500,000 loan. Most mortgages are now above the 4% mark, and experts believe they’ll continue to climb through the end of the year and possibly even throughout 2017.
What About Average Real Estate Prices?
Homebuyers are under the assumption that real estate prices will continue to fall as mortgage rates climb. While this certainly makes sense as it typically holds true in similar circumstances, there are other things to be considered. Right now, the .5% increase won’t have any real impact on real estate prices as the average mortgage size doesn’t equal out to enough extra annual interest to warrant a price decrease. However, in more expensive housing markets like California, prices may start falling if interest rates keep climbing.
What You Should Expect
To top everything off, the Federal Reserve is slowly beginning to raise its rates, too. Although this doesn’t directly impact mortgage rates at banks across the country, it can urge banks to also raise their rates for economic reasons. As such, there’s no doubt that interest rates will keep going up – at least for a while – but how far they’ll climb (and for how long) remains to be seen. The best advice is to get your mortgage quickly while the getting is still good – and before interest rates have a chance to spike in 2017 under a Republican-controlled government.
Will the Trump presidency drive up mortgage rates? It already has to a degree, but it’s more than just the president-elect that’s having an effect. The Federal Reserve has also boosted its rates, and the fact that both the House and the Senate will be republican-controlled are only adding fuel to the fire.
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