With the benchmark U.S. Treasury rate standing at 2.23% on Nov. 16, up from 1.83% on Nov. 7 -- the day before the U.S. presidential election -- mortgage rates are climbing, and fast.
30-year fixed rate mortgage rates have risen from 3.77% to 3.95% in the same time frame, and the frenzy shows few signs of abating. This week, the Mortgage Bankers Association reports that mortgage applications fell 9.2% from a week earlier, for the week ending Nov. 11. That's the biggest decline in applications in 18 months, the MBA reports.
"Following the election, mortgage rates saw their biggest week over week increase since the taper tantrum in June 2013, and reached their highest level since January of this year," notes David Stevens, president and CEO at the MBA. "Investor expectations of faster growth and higher inflation are driving the jump up in rates, and rates have now increased for five of the past six weeks, spurring a commensurate drop in refinance activity."
With the mortgage rate environment in a high state of anxiety, should potential homebuyers and home mortgage refinancers get off the fence and grab a mortgage, before rates potentially go higher?
"Yes," say some financial gurus.
"There is no time like the present to get a mortgage loan," says Robert Johnson, president and CEO of The American College of Financial Services, and co-author of the book Invest With The Fed. "Most pundits agree that rates will rise in the future."
Johnson says there is a high probability that the Fed will raise short-term interest rates following the Fed Open Market Committee meeting. "When this happens, the expectation is that longer-term rates will rise," he reasons. "Higher rates will be sparked by expected greater fiscal spending on infrastructure as proposed by president-elect Trump. This fiscal stimulus will have an inflationary impact. Additionally, interest rates have been at historically low levels for an extended period of time. The likelihood that rates will rise is markedly higher than the likelihood that rates will fall."
That's not to say mortgage borrowers should act out of panic. That's far from the case, mortgage professionals say.
"First, we need to keep things in perspective: rates on a 30-year fixed rate loan today are lower than they were a year ago, and well below the 45-year average of 8.25%," says Rick Sharga, chief marketing officer at Ten-X, an online real estate marketplace located in Irvine, Calif. "Even with the rate increase, a borrower who takes out a $100,000 loan today is only paying $23 a month more than the day before the election, which certainly shouldn't have a big impact on home sales."
Sharga says he wouldn't be surprised to see the rates back down a bit once the dust settles. "When the Fed shut down its quantitative easing program a few years back we saw rates spike by about a point, and home sales dropped like a rock; yet interest rates gradually fell back to where they were before the Fed move," he states. "But the market doesn't like change, and the bond yields have jumped up dramatically since Trump's surprising win, which has dragged mortgage rates up with them. I don't think they'll come all the way back down, but I'd be surprised if they went much higher than 4.0%."
Sharga also says it's "likely" that the real estate market has seen the last of the historically low, sub-3.5% rates that we had at the bottom of the market. "Some buyers may decide to buy now, before rates have a chance to move up any higher," he adds. "For those who decide to wait, the good news is that as rates rise, it's not unusual to see home prices slow down, or even go down, which helps offset higher loan costs. More importantly, rates are moving higher based on the expectation that we're going to see a significant jolt to the economy, and the creation of higher-paying jobs."
Other real estate industry veterans agree with that outlook, adding that any attempt to "time the market" is a fool's errand, anyway.
"The Federal Reserve has made clear their intention to raise interest rates, which we'll see play out gradually over the next few years barring a sudden recession," explains Brian Davis, co-founder of Spark Rental, and a real estate investor with 15 properties. "Prospective homebuyers are best served by buying when it makes the most sense for their finances and personal conditions - they can't control interest rates, and can predict the day-to-day fluctuations in rates."
Davis says that waiting on market conditions to be "just right" is a recipe for procrastination. "If it doesn't make sense for an individual homebuyer to buy now, based on job stability and savings, they shouldn't force a purchase," he offers. "Likewise, if a family is ready to move and it makes sense to buy (i.e. they have enough saved for a down payment, have stable employment for the foreseeable future, and don't anticipate new needs within the next few years), they should start hunting now."
"Homebuyers don't need perfect market conditions, they only need to find one property that's a good deal and a perfect fit for them," Davis adds.