The election is having a profound effect in the housing market. While the stock market has had a surge, long term US mortgage rates are ticking upward. The interest rate for a 30 year fixed rate mortgage will average 4.2% in 2017. The bond market has been headed in a downward direction. When bond prices fall, their interest rates rise.
Bond investors are looking towards tax cuts and increased government spending for infrastructure projects such as roads, bridges and airports under a Donald Trump administration. That would depress prices of long term Treasury bonds because inflation would erode their value over time. When bond investors foresee rising inflation, they demand higher long term yields and pay lower prices of bonds. Bond yields move opposite to prices and also influence long term mortgage rates, says Joe Taschler of the Milwaukee Journal Sentinel.
We have enjoyed home loans at rates that have never been more affordable. But Trump’s victory may mark a turning point for the lowest fixed rate offers. People are predicting much higher US rates in the long run, with a knock on effect across the world, says the BBC.
A 1% rate increase will decrease purchasing power by 11%, says Tim Lucas of Mymortgageinsider.com. For example, if you had $1,200.00 per month to spend on your principle and interest payment, and were able to lock in a 30 year fixed mortgage at 4.5%, you could buy a house for $295,000.00 if you had 20% down payment. If rates rose to 5.5% you are limited to a purchase price of $265,000.00, $30,000.00 off your maximum purchase price a reduction of 10.17% in buying power.
This is important information to those selling their homes as well. The pool of buyers will be affected by what people can afford when applying for a home loan.