What’s going on with the stock market and mortgage rates?

DOW chart for the last year

If you’ve been paying attention recently, you have surely noticed that the stock market has been crazy for the last 5 trading days or so. If you are invested in the market, odds are you’ve lost some money. Why is this happening?

There is some consensus about exactly what caused the drastic stock market pull back over the last several days.

Theories are:

  • This is just an overdue pull back and perhaps the market was over priced.
  • Others are pointing to the fact that the $1.5 trillion dollar cost of the recent tax cut will hit U.S. books sooner than anticipated, and that debt has to be repaid at increasingly higher rates.
  • Bond yields were and are rising very quickly which made lots of investors have concerns about inflation. 
  • Still others are talking about the change of Federal Reserve Chairman as the new chairman Jerome Powell was sworn in yesterday. We know that Janet Yellen kept rates low to unwind the big recession, but the economy is looking healthy now and we don’t know what Powell will do. The forecast is that there will be 3-4 rate increases this year. Yellen was very conservative about raising rates; but Powell historically is not nearly as dovish about how to handle the economy; so we’ll have to watch how his views and actions affect the markets. 

Was the stock market over priced given the very extended bull market we’ve seen over the last couple years? Probably. Is the stock market pull back over? We don’t know yet but it closed up more than 500 points. Hopefully that’s a signal that the worst is over.

But what are the repercussions for mortgage rates?

Look at how quickly and dramatically mortgage rates are rising?

The last rate increase coupled with the end of quantitative easing late last year DID what we expected. Rates started to rise immediately and mortgage rates increased as well, even before the end of 2017.

If you look back at our September article “Are you ready for mortgage rate increases beginning in October? hopefully you were forewarned that all signs pointed to rates going up. And that has happened. The days of mortgage rates below 4% are pretty much over. Here in Portland average 30 year fixed rates for best qualified buyers are running at 4.125% and up. 

If in fact we see a robust economy, the Feds are likely to continue with quarterly bank overnight rate increases this year, which will impact yields on the 10 year Treasury note and mortgage bond rates (which are up about .5% this year already); and this is why mortgage rates are rising. 

IF you are thinking about buying a home this year, you might seriously think about getting going with that purchase sooner rather than later. Rising rates will impact you with higher monthly payments.

Will rising rates hurt the housing market?

Rising rates will hurt most buyers, and depending on price range and amount of rate increases can ultimately price some buyers out of the market. We’ve seen that happen over the last seven years or so, and it will continue.

On the flip side, housing inventory remains way too low for the number of buyers out there looking, especially for homes priced below $400,000 here in Portland; so prices are more likely to continue to rise. But if you can get into a home, keep in mind that the average person or family that has owned a home over the last 7-8 years, your value has increased almost 60% (more for lower priced homes) and is likely to continue to rise.

Check out the attached home values heat map to see how your area has done over the last several years. 

We do expect to see home value inflation to slow this year due to rate increases and the new tax laws. But it’s only January. 

Stay tuned. We’ll keep you posted as news breaks.  

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