Merry Christmas. It’s Josh Lewis, certified mortgage consultant with BuyWise Mortgage here with the last weekly mortgage update of the year.
I will actually record one more here on the 31st next week, but you won’t be able to see it until next year.
This week, we’re gonna take a look at the final week of bond market movements and what it meant for mortgage rates. We’re gonna take a look back at 2018. What moved markets and see what we can learn going forward for 2019, which is probably more important.
In next week’s report, we’re gonna take a look at what is likely to move mortgage rates next year and what that means for you, as a homeowner, a home buyer, or a real estate professional.
Let’s take a look here. As you remember, through November and into the first part of December, we have almost a straight line run up in bond prices, or run down in interest rates, which was very good. Rates got up into the low fives for most types of mortgages and we’ve seen a nice improvement.
After that big run up in bond prices and run down in rates, we were concerned that we might see some pull back or consolidation of that market movement. Fortunately for us, that didn’t happen. We traded sideways for about 8 to 10 days and then now, the market over the last week has made an additional run up here to this next level.
From top to bottom, we made over a 200 basis point move in bonds, which equates to about a half percent improvement in interest rates over the last 60 days of the year. Very welcome news, as most well qualified borrowers are return back down into the mid to high 4% range.
Let’s take a look at what happened over the last week and what is impacting the market. The biggest movement this last week was that the federal reserve announced their final rate hike of 2018, but they went on record as saying they’re going to become data dependent, going to remain data dependent, and they are seeing some signs of slowing.
Not weakness, necessarily, but slowing in the economy. Because of that, they are likely to only raise rates two more times next year, when they were previously expecting three to four hikes.
Most importantly, what they stated is that they are not 100% committed, or it’s not written in stone, that they will continue their asset sales into next year, or at least at the same rate. What does that mean?
The last phase of quantitative easing, after the market downturn of 2008, 2009 … after cutting rates, they actually stepped into the market … the feds, being they … stepped into the market and bought massive amounts of U.S. treasuries and mortgage back securities.
At one point, their balance sheet reached four and a half trillion dollars. A lot of what we’ve seen over the last 18 to 24 months of rates creeping up and normalizing, are due to those sales. Actually started at the end of 2017. So, over a year now, of them selling mortgage back securities and treasuries back into the market.
They went from being accommodative, being a buyer of those bonds, which pushed rates lower and lower, to holding … just holding. They weren’t a buyer or a seller …
To actually being a seller and adding additional supply into the market. As you remember from Econ 101, anytime there’s more supply without an equal demand, then prices for something are going to decrease. When the prices decrease of a bond, then the rates, or yields, increase.
So, that’s what we’ve seen over the last year.
The good news is, we seem to have hit the worst of it, or gotten through the worst of it. So, let’s take a look back at what that means for the course of the year and what interest rates did.
Let’s take a look at the chart of mortgage rates from … I was first gonna look at 2018 and see what we could learn from there. But, I think it’s actually helpful to go and look back from the time of the last election in 2016.
As we all know, President Trump was elected and there was what was called the “Trump bump.” Everyone was convinced that he was gonna be super business positive, tons of deregulation, and that was gonna lead to corporate earnings going up, corporate tax cuts.
Long story short, a lot of growth for businesses, meaning inflation, overall, in the economy, which would lead to higher interest rates. Well, as we got into his inauguration, first part of 2017, it became apparent it wasn’t gonna be quite that easy.
What we saw is a spike really quickly from about 3.5% up to 4.3%. So, almost .8% increase in interest rates.
Then, through the remaining course of the year, we had peaked at 4.2% and ended the year right at 3.99%, with a low here of about 3.78%. So, about .5% range for most of the year. From a high of 4.25% to a low of 3.75%, ending the year at 4%. But,
late in 2018, the tax cuts were finally passed, both for corporations and for individuals, which again, those are both stimulative and lead to increased borrowing by the government.
Because of that, they can be inflationary as well. So, the markets were very concerned about the inflation era results of the tax cuts and we saw in a really short period of time at the beginning of 2018 a run from 3.95% up to 4.6% here by May. So, in the first four and a half, five months of the year, a big run of about .6% up.
For the next four or five or six months, all the way over here into September, markets just kinda traded sideways at about that 4.5% range. We had a couple of fed cuts.
The fed kept talking and saying that the economy was really strong, unemployment at record low levels and because of that, they were gonna have to continue raising rates and do additional things to potentially slow down the economy because it was getting away and getting too ahead of itself.
Again, inflation fears led to a run at the beginning of November, middle of November. We were at about 4.95%. Just almost touching 5%. That takes us back to the last chart we looked at where we made a nice run down here by the end of the year here to about 4.625%.
Overall, over the course of the year, up about five-eighths of a percent, after last year being up about half a percent.
So, in 24 months, during the duration of the Trump presidency, we’re up about 1% in interest rates. Next week, come back. We’re gonna take a look at what is likely to impact rates next year and what we forecast and expect those rates to look like.
Thank you for sharing the time with us. Appreciate your interest and if you have any question, definitely feel free to reach out by email, call, text. Be more than happy to answer any questions on your thoughts on where the market is going in the future.
All right, again, have a great Christmas. We’ll be back to you next week.