Interest Rates Rise Following Election
We explored how the residential market might fare under the new President’s administration (How the Housing Market Will Fare Under Either Presidential Candidate, Nov. 8). What we have already seen, however, is a rise in mortgage interest rates — though they remain under 4%. Why?
According to Business Insider, (The housing market is suddenly losing one of its biggest drivers, Nov. 19):
“It all started after President-elect Donald Trump won the US election.
One of Trump’s big plans is a fiscal-spending splurge: big investments in infrastructure, and cuts to the US’ towering corporate tax rates.
This plan could jump start growth and inflation, and it’s the latter that rocked mortgage rates. Higher inflation expectations triggered a sell-off in bonds, which push up interest rates when they fall.”
Meanwhile, Janet Yellen has indicated to Congress that interest rates could be raised soon. The chairwoman of the Federal Reserve said on Thursday that an interest rate hike “could well become appropriate relatively soon” (Fox Business, Nov. 18).
It is good news for homebuyers at this time: rates remain below 4%, and the real estate market remains healthy with housing starts hitting a nine year high this October (Bloomberg, Nov. 17). But with rates likely to rise soon, homebuyers may have less to spend for their homes come spring.
In commercial real estate news, Marcus & Millichap published their report on the election, and the news was largely positive. “The news was largely positive.
On the plus side, Marcus & Millichap said that the U.S. economy should continue to grow as the new president takes office. As the company says, the U.S. economy is now in its seventh year of a durable but moderate expansion. Marcus & Millichap says that 2 million to 2.5 million new jobs should be added during the next year. The country currently has an unemployment rate of 5 percent and 5.5 million unfilled job openings.
Marcus & Millichap predicts that unless an unexpected surprise hits the country, the economy will continue to grow, something that will result in an increase in commercial real estate construction, leases and sales” (Trump won. What does that mean for commercial real estate? Dan Rafter, Nov. 16).
However, the report also anticipates the rise in interest rates. “Marcus & Millichap says that faster economic growth could result in inflationary pressure, pushing interest rates higher. Mortgage interest rates have already jumped following Trump’s election, with many economists predicting that the average interest rate on a 30-year, fixed-rate mortgage loan might soon hit 4 percent.”