September 25, 2019

Right after the election in November 2016 mortgage rates  jumped quickly from 3.5% to 4.2% as market participants believed that President Trump’s proposed individual and corporate income tax cuts.  repatriation of corporate earnings currently locked overseas, and significant relief from the currently onerous regulatory burden, would boost GDP growth significantly, boost inflation, and push long-term interest rates higher.  Additional Fed tightening last year  boosted the 30-year mortgage rate to 4.9%.  But earlier this year the Fed recently signaled that it is concerned about slower U.S. GDP growth in the quarters ahead because of uncertainty to which weakness overseas might slip over into the U.S. economy.  As a result, it has cut rates twice by a total of 0.5% thus far this year and may have yet another rate cut in store by yearend.  If growth slows the inflation rate will not increase as had been previously expected.  As a result, long-tern interest rates have declined sharply.  The 30-year mortgage rate, for example, has dropped 1.3% from 4.9% late last year to 3.6% currently.

However, the inflation rate seems to be rising somewhat more rapidly.  If so mortgage rates should rise somewhat in the quarters ahead.  we expect mortgage rates to be 3.7% at  yearend and climb to 4.2% by the end of 2020.

Stephen Slifer

NumberNomics

Charleston, SC