Mortgage rates in the last 5-6 months have seen some turbulent changes with reactions from Federal Reserve policy. Mortgage rates have a direct correlation to home valuations. As interest rates go up, and the cost of borrowing money increases – asset prices go down. The reason behind this is that incomes don’t change very quickly over time (for most people). So, people have a finite dollar amount in mind that they’re able to afford every month in a mortgage payment – and whether that lump sum includes more interest, more principal, more taxes, or more insurances doesn’t matter to them, so long as it fits in their budget.
Late last year in the November we saw interest rates pass the 5% mark, which historically is still low but relative to the last ten years is very high. In the new year, the Fed announced it would stop tightening and wouldn’t be raising rates this year at all. In fact, mortgage rates actually fell to the low 4’s from over 5%. This sparked a little refinance boom for lenders on borrowers who had closed on loans late last year. So, what do we think is going to happen going forward?
Its important to note that the Federal Reserve Chairman is an elected official by the President of the United States. While the chairman is elected by the president, it is important to note that the Fed is not supposed to conduct monetary policy as a result of any political influence. Kind of interesting that the president, who gives you this big-time role, is not allowed to have any influence over you… wink wink… In any case, there isn’t supposed to be any political influence because our monetary policy decisions are supposed to be made in the best interest of the American economy – not in any one person’s interest. As the Fed raised rates leading up to the end of last year, we saw the stock market start to crash. Once we saw the markets start to crash, Donald Trump started to speak out about the Fed’s role in that. He has said on numerous occasions during rally’s and speeches that what the Fed was doing was going to crash the markets. What he was saying was true, as raising interest rates too fast would slow any economy, but he’s doing it for political reasons. Donald wants to get a second term, and he won’t get that second term if the economy is not doing well because of high rates and quantitative tightening. So, he went after Powell, who reversed policy as a result.
Moving forward, with Donald having a clear influence on the Fed, I think we’re going to see low rates for as long as he’s in office. In fact, I wouldn’t be surprised if they went back to quantitative easing again. For the next two years at the very least, we think there is going to be low interest rates/rising asset prices/and strong housing markets. If Donald gets re-elected, we’ll probably see more of the same until he passes the baton to the next guy or gal.
The Pesce & Lanzillotta Team, at BHHS Laffey International Realty