Janet Yellen & Trump
The Federal Reserve has been hesitant to raise interest rates over the last 24 months even though the economy has been steadily improving and seems to be on sound footing. In January 2016, the Fed forecasted four rate increases during the year that would have resulted in an increase of at least 1% and higher, if inflation had taken off. Instead, there has been one ¼% move with a possible additional ¼% move next month. As a result of the historical low interest rates, buyers of real estate secured extremely attractive mortgages, often times allowing them to leg into larger and more expensive properties.
This all may be coming to an end with the outcome of the presidential election last week. President-elect Trump has been broadcasting his frustration with the Fed interest rate policies and when coupled with his fiscal platform of financial deregulation, restricted trade, and infrastructure spending the financial markets are primed for increased inflation and ultimately higher interest rates.
The yield on the 10 year Treasury note is an excellent indicator of mortgage interest rates. Post-election the 10 year TNote traded above the 2% level which is the first time since the 1st quarter of the year – all suggesting the market is anticipating higher rates. Higher interest rates will significantly affect the buyer’s decisions as the more expensive cost of money will reduce purchasing power. The benefit of higher inflation usually provides the current homeowner higher property values as assets (especially real estate) increase in value in inflationary environments.
Clearly time will tell but I think it is evident that the bias for higher interest rates has shifted with the election. If you are thinking about purchasing property it’s a great time to lock in low mortgage rates and if inflation does become the norm enjoy the benefits of being in an attractive asset.