Trump Election Sees Mortgage Interest Rates Spike
Although he has not yet taken office, Donald Trump’s recent election has already impacted the mortgage interest rate environment. Since his election, the average interest rate on a 30 year fixed rate loan has spiked 15%, from 3.5% to 4%. Historically speaking, however, rates remain extremely low. With their quarterly meeting coming up in December, many economists are speculating as to how the Fed will react to the election in light of its immediate impact.
The below chart reflects Freddie Mac’s weekly interest rate for 30 year fixed rate loans, 15 year fixed rate loans, and 5/1 adjustable rate loans. As depicted below, rates declined toward the beginning of the year and steadied at about 3.5% for 30 year fixed loans and 2.75% for 15 year fixed and 5/1 ARM loans. Subsequent to Trump’s election, rates immediately spiked approximately 0.5%, up to over 4% for 30 year fixed loans and approximately 3.25% for 15 year fixed and 5/1 ARM loans.
According to an article posted by CNN, the reason for the spike in interest rates has to do with volatility in the bond market. Trump’s proposed policies to reduce spending and implement tax cuts promise faster growth, but also faster inflation, thereby increasing the return on treasury bonds and conversely increasing the cost of borrownig. According to Forbes, the jump in rates also has to do with the market’s expectation that the Fed will be raising the target interest rate in December. These increased rates have already had an immediate impact on refinance applications, which are down 16% since the election, according to Freddie Mac.
Despite the jump in rates, it is important to maintain perspective. Today’s interest rates are almost exactly the same as the beginning of 2016. In fact, as we wrote in the beginning of 2016, at that time “experts” were expecting that interest rates would increase to approximately 5% by the end of 2016. Instead, rates dropped through 2016. Accordingly, while it remains to be seen whether the trend of increased rates will continue into Trump’s presidency, current rates remain low from a historical perspective and despite expert predictions to the contrary.
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