Rising rates may drag down mortgage market in 2017: Freddie Mac

by Ryan Smith16 Dec 2016
A global bond market rout that has wiped out $145 trillion in value since Election Day is continuing to push rates higher, according to new data from Freddie Mac – and that’s not taking into account Wednesday’s news that the Fed would hike the benchmark interest rate.

The 30-year fixed-rate mortgage rose to 4.16% this week from last week’s average of 4.13%. A year ago at this time, it averaged 3.97%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage was also up, averaging 3.19% this week. Last week, it averaged 3.17%, and a year ago at this time it averaged 3.03%.

The rise in rates is driven largely by a global bond sell-off. Traders are moving money from bonds to stocks in the expectation that President-elect Donald Trump’s economic policies will spur growth, making stocks a more lucrative investment. The sell-off has wiped out $145 trillion in global bond value since Election Day, according to the Wall Street Journal – and the Fed’s decision to raise its benchmark interest rate is deepening the rout.

This week’s Freddie Mac mortgage survey was completed before the Federal Open Market Committee made its announcement yesterday, according to Freddie Mac chief economist Sean Becketti. And although the hike was expected, it will probably cause mortgage rates to edge at least a bit higher still. And if rates keep rising, it could act as a drag on the mortgage market, Becketti said.

“As was almost-universally expected, the FOMC closed the year with its one-and-only rate hike of 2016. The consensus of the committee points to more rate hikes in 2017,” he said. “…If rates continue their upward trend, expect mortgage activity to be significantly subdued in 2017.”

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