THE DEFINITIVE HOUSING MARKET AND INTEREST RATE FORECAST FOR 2017

Active and higher. That’s it, that’s my forecast; housing markets will be active and interest rates will trend higher. The question of course is how active and how much higher, so here you go:

Since what I do is all about finance and interest rates, people tend to assume that I know what is behind the doors with the signs that say “Interest Rates” and “Market Trends.” Truth is I am no better at handicapping interest rate and housing market trends than anybody else. I watch every day, I absorb what is happening, I make assumptions and I roll the dice just like everybody else.

Real estate agents dominate my cell phone and Outlook contacts. I am a mortgage guy and real estate people are important if I want to do things like pay bills, eat and maybe save for when I am too old to do this anymore. The technical term for mortgage “guy” is “originator.”

And real estate people ask me all the time what I think about economic things that have a lot to do with our respective livelihoods. I get asked about what direction interest rates are headed and where they will be in the future. I get asked what I think housing market activity will be and how strong the economy will look in 2017. I have been a mortgage guy for a long time and I think I have the exact right answer when I get asked the housing market activity question. What direction rates are headed and what the economy will be doing are questions that are above my pay grade, but I will do some common sense opining here in a moment.

As far as the housing market in 2017, I can say with absolute certainty that people will be selling houses, people will be buying houses and people will be getting mortgages. I am 100% certain of this and you can use this information with ironclad confidence as you tread into whatever housing market dynamics you are contemplating. Mortgage interest rates do not drive or impede housing market activity. People buy and sell houses in all interest rate environments and for a host of reasons that have nothing to do with mortgage payments. Families grow, families shrink, jobs and fortunes change, people get married, people get divorced, this list could go on all night. Interest rates are just part of the equation; they are not the headline determinant.

And interest rates have already telegraphed the near term future trend with a dramatic move north following the U.S. Presidential election. Almost immediately after the votes were tallied, mortgage rates which had been hovering around 3.50% zoomed up to 4.25% and have settled in with this as the current norm. And while the Fed left short term rates unchanged at last week’s meeting, notice has been given that engineered rates will be moving north in 2017.

According to Dr. Yoav Benari of financialgauge.com; “The current environment of slow but steady economic growth and inflation suggest an end to the secular decline in bond yields once 10-year Treasuries top 2.5% - with a likely levelling off in a range between 3% and 4%”. At this writing, 10-year Treasury yields are trading slightly above 2.4% and mortgage interest rates are hovering around 4.25%. Should 10-year Treasury yields move to somewhere between 3% to 4%, we will see mortgage interest rates in the 4.75% to 5.75% range.

The U.S. economy has yet to break out and definitively march towards real growth but signs are bullish and bets are being made that robust will be a regular part of the economic lexicon before long.