We like to check in from time to time with our mortgage guru, Matt Young of MDC Group. Matt is kind enough to fill us in on the mortgage market and it seemed like a good time to check in for a 2017 forecast.
It just so happened that today, Wednesday, Dec. 14, the Federal Reserve finally raised a key interest rate for the first time in a year. The bank in a unanimous vote raised its short-term rate to a range of 0.5 percent to 0.75 percent from 0.25 percent to 0.5 percent. This may be in anticipation of a new president trying to boost up the economy. Three rate hikes were further anticipated to be made in 2017.
Del Phillips: So Matt, talk to us. What does this all mean?
Matt Young: Remember that inflation is the arch-enemy of mortgage rates. The Fed’s best tool to fight inflation is by raising the cost of short-term money. As the economy has continued to improve in 2016, inflation has become more of an issue.
What effect will this have on mortgage rates?
In the absence of other factors, the Fed’s fighting inflation will have downward pressure on mortgage rates for a period of time. Most analysts believe that if rates do decrease, we will not see rates all the way back down in the mid 3 percents where they were most of 2016, but maybe we will have a .25-.375 percent reduction at best.
What effect will the new administration have on markets?
Another external factor that could have a big impact on rates is the “Trump effect.” If Trump follows through with his promise to apply tariffs to imports that will cause products to be more expensive for consumers here and increase inflation and mortgage rates. Another issue is his promise to end the Fed’s investment in mortgage-backed securities (MBS), which has served to create extra demand on MBS and thus, helping to keep rates lower. Without this extra demand, rates should rise even higher. Keep an eye out for a very interesting year.
Prices on real estate are sky high. Not only might rates go up, but folks just have a hard time coming up with down payments. Can you give us any suggestions?
Yes, more and more new buyers are having difficulty coming up with a traditional 20 percent down payment. There are many programs to assist these buyers. We have $0 down programs for those who are VA loan eligible. We also have a 1 percent down program where the lender kicks in another 2 percent to the down payment, giving the buyer instant equity of 3 percent in the home. And then of course, we have the traditional 3, 5 and 10 percent down programs with mortgage insurance. New products coming to the market just after the new year include 1st and 2nd mortgages, which allow a buyer to avoid mortgage insurance by borrowing the rest of their 20 percent down payment on a 2nd mortgage.
Thanks, Matt, for all this good info. If you’d like to get in touch with him, Matt can be reached at 619-325-4101 or by email at matt@mdcgroup.net
