Peter Gallagher, Princeton Wholesale
Happy Wednesday everyone! I hope the first week of the NFL regular season treated you well (unlike us here in Pittsburgh), and you're excited to kick off week 2 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's reporting rates are looking better than they were since this past April (great news), so it would 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 — let's jump into them.
1.Turkey’s Currency Crisis
The Turkish Iira lost half 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 2016. This could be the sign of a coming economic slowdown, which would drop rates. But the issue is people aren't avoiding buying a home 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 — 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. Federal Reserve 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 one rate hike is not imposed. If the Fed does not raise rates, this would mean they fear an economic slowdown. If one of these expected rate hikes does not happen, lock those loans! The rates will be artificially low for only so long.
As you can see, there are several things we have to consider when talking about the outlook for rates this month. Some signs point to unexpected lows to continue, and those are signs I hope are true! Let's all try to lock in our rates, buy these homes, and finish up these refinances this fall. Because as everyone knows… Winter is coming.
Until next week,
Peter
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.