December 2018 was another great month for interest rates as they continued their slide that began in November. However, this came with high volatility as several opposing factors continue pushing and pulling rates in opposite directions. The global economy has been slowing down and this has continued into December. Economic slowdowns tend to push investors into a “risk off” stance as they sell equity investments and purchase safer investments, such as US treasuries and mortgage bonds. When demand for mortgage backed securities increases, it drives new mortgage interest rates lower which is great for those applying for new mortgages.
The US is still in talks with China regarding our trade policies, aka Trade Wars, and these issues will continue to impact both global and domestic markets. China has already been experiencing an economic slowdown which could expedite the finding of a satisfactory resolution for both sides of the trade war. Domestically, changes to tariffs on building materials could affect the affordability of home prices for many new home buyers, but perhaps most importantly, ending the trade war would alleviate uncertainty and reign in volatility in the markets.
Also in December, the US government shutdown began and is still continuing, marking the longest government shut down in US history. This is a major problem for borrowers working for the government as many of these borrowers are not collecting paychecks during the shutdown, which could cause late mortgage payments and delays in closing for those purchasing homes. Even those borrowers not working for the government may run across issues. Some programs, such as USDA loans, are in a state of suspense until after the government reopens and gets through a tremendous backlog. FHA, VA, and conventional loans could also be affected as many of the verification programs, such as requests for tax transcripts, are in a state of limo and could potentially delay purchases and refinances as well.As a side note, although the government shutdown causes financial hardship for hundreds of thousands of government employees, the Congress and House members, as well as the President continue to get paid as usual. As a point of principle, we find this highly unethical that the rule makers (and in turn, those responsible for the shutdown) continue to get paid while those on the front lines of making this nation run have to deal with this hardship. Food for thought.
The Fed also met in December and determined to raise the Federal Funds rate by another.25%, which wasn’t a surprise and seemed to be justified when the domestic employment numbers came in far better than expected in early January. However, Fed Chairman Powell has curbed his hawkish tone regarding raising rates into 2019 and we don’t anticipate another rate hike until at least summer if at all. It is actually possible to see the Fed decrease rates if the US markets follow the course of the global economy. When the Fed moves from rate hikes to rate decreases, it is usually done 6 months after the last hike, which means if the economy does slip, we could see a rate hike as early as June.
So what does this all mean?In short, we believe that this winter is an amazing time to purchase a new home and here is why.First, seasonal demand this winter has made it more affordable to purchase during the winter and this has proven to be especially true this winter.Also, rates have been dropping for the last couple of months of 2018 and although we do anticipate high volatility, we are not predicting notable and sustained rate increases at this time.This can change at a moments notice so be sure you are working with mortgage professionals who understand the markets.Lastly, if you are able to purchase during the winter, you have less competition and because of this, the process is often faster and less expensive than during the summer months.