Fear is probably the wrong word in the title but it helps sell the article. Contrary to the last three plus years, we believe that the market/interest rate paradigm has changed as a result of the presidential outcome this month and the near-term buyer needs to keep at least one eye on interest rates as part of the home buying process.
If the Fed, in concert with market pressures (growth, inflation, lower unemployment), believes they have the green light to normalize interest rates, we think they will be much more aggressive. We would expect a move in December (mid-month) and four moves in 2017 for an aggregate move of 1.25% to 1.50% increase in the fed funds rate. This will put more pressure on the 10-year note to move higher which is an excellent proxy for fixed mortgage rates.
Although higher mortgage rates decrease buyer purchasing power they do act as a partial hedge against a slowdown in the economy. As the Fed has looked to mend the economy post recession The more room the Fed creates by moving interest rates higher the greater the flexibility to influence monetary policy and inject stimulus through fed fund rate cuts. Clearly, this is a team view and not a forecast. Happy Thanksgiving from The Meier Team!