Sack the Rates!
Happy Wednesday everyone! I hope the first week of the NFL regular season treated you well (unlike us here in Pittsburgh), and week 2 is right around the corner with the Ravens headed to Cincinnati tomorrow night. We’re almost mid-month, and I think this is a great time to talk market outlook.
Freddie Mac is reporting rates are looking better than they were since this past April (great news), so it could be a great time for potential home buyers to re-check the market. Same goes with you, potential refinancers. And even better news? We may see this trend continue into the winter. There are a few factors that’ll dictate this; lets jump into them.
1.Turkey’s Currency Crisis
The Turkish Iira lost half of its value compared to the US dollar over the past year. Also, this past August the US doubled the import tariffs on steel and aluminum. The big concern here is that investors generally purchase safe assets like US mortgage-backed securities during times of economic uncertainty. That in turn would increase the demand for mortgage-based assets and we would watch the rates fall. While it’s never ideal to have a currency-induced recession, Turkey’s situation is certainly helping keep rates lower than they would naturally be.
2. Home Sales are Slowing Down
The sales of previously owned homes fell for the fifth straight month, and sales are now as low as they were in February of 2016. This could be the sign of a coming economic slowdown, which would drop rates. But the issue is people are not avoiding home buying due to economic fears, they are avoiding it because home prices have reached incredible highs after 77 straight months of home price increases. Also, this time two years ago, rates were closer to 3.5%, rather than 4.5%. Home buyers aren’t afraid of the future, they’re being priced out and rates or home prices will have to come down because of it.
3. Trade Wars
I covered this topic a few weeks ago and in summary these trade wars could lead to either higher or lower rates. The low rates could come if there is an overall concern of recession, like mentioned in point one. Due to these tariffs, Americans could have a harder time selling goods outside of the U.S. If investors predict these trade wars will do more harm than good, rates could fall. On the other hand, tariffs could induce inflation. Due to increased prices for raw materials, the higher costs of doing business would be charged to the borrower. As inflation rises, rates must rise as well to keep investors buying mortgage-backed securities.
4. Fed Scheduled Rate Increases
Just like we’ve heard all year, there are two additional planned rate hikes. One this month and the other in December. These “built-in” rates offer an opportunity for buyers if for some reason o