Steve Stout is a branch manager with Guild Mortgage Company here in St. George. He has graciously written a post to share his projections and thoughts on mortgage interest rates.
Mortgage rates have surged one whole percent point since the November 8th elections and are now hovering in the mid-four percents.
The financial markets seem to be encouraged with the prospect of a Trump Presidency. Investors have been pulling their money out of the Bond Market and investing it in the Stock Market. Stocks have soared to new records seemingly every day, while the prices of Bonds have been plummeting. This has forced the Mortgage Interest rates higher and higher almost every day since the election.
The question is, will they continue to go up or will they come right back down, as they seem to have always done in at least the past dozen years?
To understand why this has happened, you must remember that mortgage rates are part of the overall Bond Market. The Bond Market is a safe place to park your money during times of economic uncertainty or in a struggling economy. As the prospects of the economy begin to turn around, investors naturally begin to move their money from the relative safety of bonds to the riskier but potentially higher returns of the Stock Market. This adds fuel to the improving economy, causing inflation, which erodes the value of bonds even further. When the value of a bond goes down, the yield goes up. It's like a seesaw. The price goes up, the yield goes down. The price goes down, the yield goes up. This includes Mortgage-backed securities. Mortgage rates follow the yield of the securities.
It will be interesting to see if this latest upward movement in the mortgage rate is just another reactionary blip on the "radar screen" or if we have, as I am afraid, begun a new long-term trend toward higher rates. This has the feel of something more substantial.
Interest rates have to go up sometime. I have been wrongly predicting that they would go up in a sustained trend every year for five or six years now. So far, the upward movements have proven to be just adjustments, or corrections, in the cyclical ups and down of the market. However, there are cycles and then there are CYCLES. Small cycles within larger cycles within even larger cycles.
For example, just after World War II, interest rates began a 35-year upward cycle, culminating in the crazy high rates of 1981. In the 35 years since, we have had declining rates culminating with rates in the low threes in 2012 and 2016. Is it time for the beginning of another 35-year cyclical trend here and now?
For me, the bottom line is that these rates still offer a wonderful opportunity. Those who wait now may end up holding the proverbial "empty bag", as prices and rates could just continue to head North. If you are thinking of upgrading your home, buying your first home, or even refinancing the home you are in; you may want to make your move now. You might be glad you did!