Things are looking up for U.S home buyers and homeowners and the prospective home buyers. Those may have Trump to thank for the continued decline in U.S mortgage rates and the perspective of further declines through the early part of next year.
The 30-year fixed rate averaged out at 3.90% last week, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS). That’s down from the previous week’s 3.92% and 15-year mortgage rates slipped from 3.32% to 3.30%.
The falling rates come in spite of rising expectations of the U.S administration passing through the Republican tax reform bill, with incoming FED Chair Jerome Powell’s comments in front of Congress on monetary policy leaving yields on the lower side through the first half of the week.
It’s somewhat hard to imagine that rates will stay at current levels, however, when considering the likely impact of tax reforms on yields over the near-term. With 30-year mortgage rates correlated to 10-year Treasury yields, special Counsel Mueller’s continued progress in investigating Trump’s election campaign is one factor that could pin back yields, with immediate concerns over the possible closing down of the government should funds not be made available by 8th December also another factor. These are all near-term factors however that will likely fall away before the end of the year. Tax reforms, on the other hand, are likely to have an influence and we could see mortgage rate forecasts for next year soon be revised upwards.
The 3rd quarter GDP out of the U.S was revised upwards in the 3rd estimate figures and Freddie Mac’s PMMS was completed before the GDP numbers were released.
For now, the upward effect on mortgage rates from tax reforms and better than expected GDP numbers are likely to be offset by the outlook on inflation that remains well below the FED’s 2% objective. That means that, while tax reforms may well give a boost to the economy until inflation takes a run at the FED’s objective, the FED’s current rate path is unlikely to change too much for next year.
What an outcome it could be for homeowners and those looking to refinance or buy property in the New Year. The combined effect of an increase in disposable income and falling mortgage rates can only be a good thing for those in the market and for the U.S economy. Labour market conditions are tight, taxes are likely to be on the decline and mortgage rates are on the back foot.
It won’t last for long, with a likely increase in consumer spending, not to mention pickup in wage growth, likely to spur inflation and yields, but the window of opportunity is there and priority one is to lock in the best possible rate before it all starts heading north.