Since the beginning of the decade, yields on the benchmark 10yr note have made a slowly, stealthy move higher. Within that time frame, we experienced mortgage rate ‘euphoria’ through the summer of 2016. Now as we enter into an election year, political uncertainty and most importantly, and improving domestic economy, we are in for a correction.
Now I am not saying rates are poised to skyrocket as we enter into the new year, however, the grind higher with intermittent quick moves higher will be the norm.
The election is a wild card with most experts calling a Trump victory murder for the US dollar. In the meantime, investors are inclined to watch and wait until after Tuesday before jumping back into the market.
Overseas, negative yields on fixed income bonds became the norm, however, even the number of outstanding bonds with negative yields has dropped. Prices are increasing along with wage growth and now the target inflation number that the Fed has been locked in on is a much closer reality. A December rate hike is almost a lock.
There are no more central bank buyout that will buoy treasury debt. They are on their own now, searching for level of comfort and liquidity. I would not be surprised to see 10yr yields hit 2% by the end of the 1st quarter of next year.
This all translates into a ‘handle’ change. By that, I mean rates have had a 3%+ ‘handle.’ Now the market is poised to see that change and get back to 4+% lending rates similar to what we saw back in 2008-2009. An adjustment to the consumer’s mentality of these historically low rates will have to happen. I just hope it is just that, an adjustment, and not a scare off tactic.
In our industry, we must all be prepared to walk the thin line and explain the value that has once again resurfaced in the real estate market. Remember, renters may be real estate liquid, but I can remember living in NYC and renting and having nothing to write off against a massive tax bill each year all along having to pay a rising rental payment each year (the last being $3500 month!).
The playing field is changing. Although many will not be the talk of the Christmas party this year boastfully proclaiming a 3+% rate, there are those that are buying now that are set to enjoy an improving economy along with rising home prices and appreciation.
Good luck next week.