Will Trump’s election move mortgage rates? On October 1 I wrote “ If (Investors) see..Trump…as destabilizing they are likely to drive long-term interest rates up.”
Today the stock market initially tanked in overnight trading, and then soared up as investors digested the meaning of a Trump presidency, with some stock classes (like private prisons – you can’t make this up) soaring and others tanking, like gun manufacturers. As I said in October, the market likes stability and hates the opposite, so Treasury Bonds – as good a proxy for mortgage interest rates as we have – sold off “bigly” today.
Mortgage-backed securities did the same, and lenders found themselves re-pricing several times over the course of the day as pricing got worse. So, is that it? Have we seen the last of low interest rates?
Not in my opinion. Institutional investors have trillions of dollars they have to keep working, and every day they have to figure out where to move large chunks of it. Once they have digested the impact of the events of the election, the current panic will subside. As it does, remember that these investors can’t stick this money in their mattresses – they have to put it somewhere. While German bonds might be looking somewhat attractive at the moment due to the economic strength of Germany and it’s political stability, German bond yields are extremely low (the 10-year bund closed at 0.211% today!) That is compared to the U.S. 10-Year Treasury bond, which closed the day at 2.072% – nearly ten times as high.
Can they put the money into equities? Well, some of it but definitely not all of it, and arguably since the stock market indices are all in record territory and so presumably are more likely to go down than up further in the short run, institutional investors will not want to invest much of their money there.
In short, this money has to go someplace, and despite fear of whatever instability a Trump administration might create, it’s hard to find a safer place to park your money at that yield, especially when you have to park billions of it at a time. U.S. Treasury Bonds and mortgage-backed securities are still a high yield for a safe investment.
Still, it could take a while for the market to calm down and yields to go back down, and it could take even longer for the drop in mortgage rates to show up at the retail level (the rate you are quoted on a mortgage.)
If you are thinking of refinancing, don’t wait for mortgage rates to drop. By the time you do we’ll have missed the next dip in rates. Get started, get approved, and lock when we see an opportunity when rates dip again.
Be patient, stay calm, and maybe have a nice glass of wine. We’ll all be fine.