Post-Election Rate Spike Will Reverse Course

Rest easy. No need to awfulize. Enjoy your Sunday morning hot cup of joe. The Trump win caught markets off-guard. This created a post-election spike in mortgage rates which are going to simmer right back down in the near term.

At press time Wednesday evening, compared to November 8th, lenders raised their conforming 30-year fixed rates between 0.375 percent and 0.5 percent.

What gives?

“Uncertainty is a piece of it,” said Lynn Fisher, vice president of research and economics at the Mortgage Bankers Association “Tax reform or investment in infrastructure stimulates the economy and helps push up prices, (causing) inflation to pick-up.”

Consumer mortgage rates and fees are derived from mortgage backed securities, which in hand closely mimic the 10-year Treasury rate. For the sake of perspective, the 10-year Treasury topped out on Nov. 15 at 2.23 percent, almost exactly where the 10-year was Nov. 18, 2015, when the rate was 2.27 percent.

The low point on the 10-year in 2016 was July 6 at 1.38 percent. That was less than two weeks after the United Kingdom unexpectedly voted to leave the European Union. When conventional expectations don’t come to pass, mortgage markets have spasms one way or the other and then tend to settle back to where they were.

Fisher said that total residential mortgage funding volume in 2015 was about $1.7 trillion. The MBA projects that 2016 will land at $1.9 trillion. It expects $1.6 trillion in 2017, with purchases climbing 11 percent and refinances falling off.

There is “nothing obvious to keep rates rapidly increasing,” she added.

The silver lining for home sellers is that interest rate events tend to get procrastinating buyers off the fence.

“There is a concentration of buyers that are ready to look because all of the talk that rates are going to go up,” said Candice Blair, broker of Niguel Point Properties.

Comparing a loan amount of $417,000 on a 30-year fixed rate at 3.25 percent of a few weeks ago to today’s rate of 3.75 percent, the mortgage payment increase is $116, or a principal and interest payment of $1,931. Yes, a big jump indeed.

If the Federal Reserve raises rates in December, adjustable rate mortgages will go up a tad.

I’m doubling down. My tea leaves and my crystal ball both show mortgage rates settling back down, at least between now and right after President-elect Trump’s Jan. 20 inauguration. If it were me, I’d float the rate and not lock in until you are cleared to close.

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Californians Fleeing State's High Cost of Housing

California’s warm weather, sunny beaches and world-class schools have lured people to the Golden State for decades, but rising home prices are turning that equation around.

Data analysis firm CoreLogic says that for every two homebuyers who moved to California from 2000 through 2015, five others sold their homes, packed up and moved out.

Arizona and Texas were the top destinations for people moving out of California, CoreLogic reported. Only New Jersey had a higher ratio of fleeing homeowners during that period.

“California had the largest number of out-migrants in 2015,” CoreLogic Senior Economist Kristine Yao said in a blog post published Thursday.

The trend of out-migration was also noted in a separate trio of reports released earlier this year by Beacon Economics. Beacon noted that 625,000 more U.S. residents left California between 2007 and 2014 than moved into the state. The vast majority ended up in Texas, Oregon, Nevada, Arizona and Washington.

The search for more affordable housing is sending low- and middle-income workers out of the state, while higher-wage workers continue to move in, which argues against the theory that high taxes are driving people away.

“California has an employment boom with a housing problem,” said Beacon founding partner Christopher Thornberg. “The state continues to offer great employment opportunities for all kinds of workers, but housing affordability and supply represent a significant problem.”

Home prices and rents have been rising steadily for more than four years.

CoreLogic figures show Orange County’s median home price was up 42 percent in the four years ending in September. Prices were up 55 percent in Los Angeles County, 57 percent in Riverside County and 75 percent in San Bernardino County.

Although home sellers leaving California last year paid, on average, 36 percent less for their new homes out of state, they tended to end up in better neighborhoods, CoreLogic reported. Their purchase prices ranked in the 77th percentile for their new metro areas, while their sale prices ranked in the 62 percentile back home.

“Of the homeowners moving out of state, more of them sold in high appreciation, high cost areas and bought in lower appreciation, more affordable areas,” Yao wrote.

California home prices have risen in part because of a lack of inventory.

From 2005 to 2015, permits were filed for only 21.5 housing units per every 100 new residents in the state. That put the Golden State second to last behind Alaska, where only 16.2 housing permits were filed for every 100 new residents.

On the flip side, Michigan saw 166 permits filed for every 100 new residents.

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