While there are significant concerns over the auto loan sector and the subprime segment, in particular, the housing sector paints a very different picture.
We have seen the U.S housing market continue to recover from the dark depths of the global financial crisis and with it, the outlook for mortgage rates continues to look enticing for homeowners looking to refinance and for those looking to get onto the property ladder.
It was perhaps a little less rosy last week, with Freddie Mac announcing that 30-year fixed rate mortgages crept up from 3.9% to 3.95%. That’s a 4-month high and a touch above the 3.94% for the same time last year.
With long-term mortgage rates correlated with 10-year Treasury yields, the progress of the U.S tax reform bill through the house supports yields. News of the U.S President’s campaign election being subpoenaed reversed any uptick in yields, however, with the Dollar and yields taking a tumble late in the week. Freddie Mac’s rates came ahead of the news and we could see longer-term rates ease back in the week ahead.
The good news is that a December rate hike is largely priced in and will unlikely have a material impact on mortgage rates over the near-term. In fact, estimates for 30-year mortgage rates for next year are particularly favorable. Rates are forecasted to peak in February of next year, before easing to 3.73% by April of next year.
For those looking to sit it out and wait for better rates, there is a risk that current forecasts fall short of considering a possible shift in the FED’s rate path projection for next year. Last Monday, FOMC voting member Harker suggested that he would be supportive of 3 rate hikes next year. The other factor to consider is the fact that the FED has a little buffer from an interest rate perspective, to manage an economic slowdown. Persistently low inflation has been the root cause. If tax reforms do manage to get through before the end of the year and the administration begins to focus on infrastructure spending, things could change quite rapidly. While talk of infrastructure spending may do its rounds, the debt issue faced by the U.S government and the impact of tax reforms on U.S debt levels suggest that infrastructure spending is unlikely to materialize anytime soon.
Mortgage rates are linked to financial markets and politics in some cases. Projections for three rate hikes in the next year can cool down the housing market. As it seems now, 2018 can be hectic for real estate as buyers always wake up before things get expensive.
That will be good news for those looking to take advantage of the favorable mortgage rate outlook through the first half of next year.