Jan. 25, 2017, was a historic day in the equity markets. The Dow Jones Industrial Average broke the 20,000 mark for the first time in history, and all that optimism has put upward pressure on mortgage and treasury rates.
Since the election, mortgage rates have jumped by almost 1 percent. The markets (both stock and bond) are expecting great results from what the new administration will bring to the table. Rates have moved up because of better-than-expected economic news and the potential of higher wages and higher inflation, both of which are needed to sustain real estate prices increase.
Since 2009, when the Fed began buying mortgage bonds, low rates have substituted the wage inflation for real estate appreciation or growth. For the first time in a long time the market is signaling that we may see Americans make more money, which will push rates and real estate prices up.
But this process may get a little tricky. Wages have not moved that much yet, but mortgage rates and real estate prices have, which is hindering affordability for buyers. This can work against us. We may actually see sales slow down because buyers will be stepping back.
Statistics for the month of December 2016 , the first month after the jump in rates, shows new home sales down over 10 percent from the previous month. This decline was attributed to higher rates and higher prices.
We are expecting rates to stay below 5 percent in 2017 and there may be a stock market correction at some point, which will bring rates down temporarily, but for the most part the trend in rates is UP.
We are advising our clients to lock into current rates as soon as they have come to terms on a property and to not wait.
2017 will prove to be a very interesting year.