Q. Is now a good time to buy?
A. Good question. Mortgages generally do not directly mirror a Fed increase. At times mortgage rates have gone in the other direction. Most mortgages track the 10-year Treasury, which is influenced by a variety of factors including the potential for future inflation, investor appetite for U.S. Treasuries, etc.
If inflation is expected to remain low, investors are often drawn to treasuries despite a low rate, as there is no need for a higher return to offset higher inflation. Additionally, uncertainty in global markets often initiates a flight to safety as US Treasuries are viewed a safe ultra-low risk instrument. Because of the way price affects yield, increased demand equates to low rates. Events in 2016 represent a good example. Concerns about Brexit and a reduction in the rate of growth in the Chinese economy led to an increase in 10-year buying, which lowered yields and as a consequence, lowered mortgage rates.
Since the election, the 10-year yield has risen as expectations of a loosening of regulations, an uptick in infrastructure spending, and perhaps most important to investors, tax cuts. The average rate on a 30-year fixed-rate mortgage has surged to 4.2 percent from last year’s 3.65 percent average.
Q. Does that mean home purchase rates aren’t like to rise?
A. Perhaps, perhaps not. Considering the improvement in the global economic outlook, and that the Fed’s inflation target of 2% is within reach, the demand for the 10-year is likely to decline. If the Fed makes good on its stated intent to increase rates during 2017, it seems likely that mortgage rates will rise over time. Brad Springer, CEO of RatePlug predicts the average 30-year mortgage rate will reach 4.5 percent to 4.75 percent by year’s end, up from last year. However, prior to the 2008 meltdown, mortgage rates were not below 5 percent.
“Rates are still incredibly low,” Springer said.