The midterms last week were a mixed bag, but clearly the Democrats made significant gains, especially in the US House of Representatives. This upcoming change in the overall power structure has already begun to affect the stock and bond markets which try to predict what the future holds. Right now, with substantial drops of hundreds of points in the Dow the last several days the stock market is telling us that equities are not as attractive as they once were. This has benefitted bonds which are now easing off of 7 years highs and this trend appears likely to continue well into next year as the Democrats are expected to make life difficult for the President and his economic policies soon.
Lower bond yields translate into lower mortgage rates and weare seeing some nice improvements to rates lately. On top of that, banks continue to offer moreaggressive lending products and reduced fees and rates in an attempt to capturemarket share. Banks are sitting onexcess liquidity right now due to the easing of Dodd Frank regulations underPresident Trump for required reserves so they are looking to lend this money atsurprisingly low rates given the current rate climate that is primarily due tothe Fed.
The Fed has gone on record many times this past year and again as recently as last week stating they expect to raise short-term rates another .25% in December and several more times next year due to the strong economy. This is a double-edged sword as it helps cool off the economy and reduce inflation which is one of the Fed’s primary goals, but it also means we are paying more and more interest on our national debt and that leads to other issues including a weakening dollar and potentially even higher rates.
What does this all mean? Well, the markets are clearly indicating after the election that they don’t care what the Fed says, things are not as rosy as the Fed might indicate and they may need to take their finger off the rate trigger soon and possible reverse course. While we still expect another rate increase in December, beyond that we expect a cooling off of the economy due to stock market weakness coupled with record levels of borrowing by the Federal government and an uncertain political climate. This bodes well for real estate and mortgage rates and we expect a return to a market that looks a lot like 2017 and early 2018. Real estate prices have “flattened” recently in some locales due to mortgage rates but we expect that to be short-lived as rates make a comeback which brings more buyers and should result in a healthy real estate market for years to come. Our advice is to consider buying real estate while prices are leveling off and you still have leverage as a buyer and then as rates continue to come down a refinance is always a possibility so that you get the best price possible now and also the best rate possible down the road with this strategy. Please let us know how we can help you with your goals and aspirations, we are always here to help.
Article supplied by : Sherwood Mortgage — Rob Scheuing — (805) 496-2512