In case you haven't already noticed, it looks like we can blame the election for something else now - a huge spike in mortgage rates.
The last couple of weeks have been full of surprises. Not only did nobody (I don't really think that's a double negative) predict the outcome of the election but nobody thought that the financial markets would react the way they did. In fact, as the election results were coming in the Dow Jones futures were off as much as 800 points - or around 4%, which is huge. And, based upon past indications, this was going to be the world we would be living in.
But by morning - and this is where the real surprise came in - the stock market was actually up and it has risen even further since them. God knows why protectionism and trade wars, mass deportation of the labor force, the end of H-1B visas, and huge deficits would be good for the economy but the market decided it was. And the stock market is a lot smarter than me.
In the meantime, interest rates have spiked - presumably because deficit spending will drive increased government borrowing and inflation. And those interest rates increases have flowed through to the mortgage market. Mortgage rates are up about 30 basis points (0.3%) since the election. And they spiked almost immediately after the election so we pretty much know the two events are linked.
Check out the graph below from BankRate.com. Mortgage rates are at the highest level since January.
Do I think this is bad for the housing market? Well, it's not good but it's also not horrible. I mean...heck...this is still lower than mortgage rates during all of 2015 and 2014 and the Chicago housing market was clocking some nice double digit percentage gains in 2015. The impact on the buyers of a $300,000 home with 20% down payment would come out to about $720/ year in increased interest, or about $60/ month. The impact on the monthly payment is a bit less because the principal repayment portion goes down a bit.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.