Vail Daily column: Presidential scandals move mortgage rates
May 19, 2017
The United States is not the only country with presidential woes, and global fallout from other countries' problems is magnifying the impact of the investigation into President Donald Trump.
This week, the appointment of a special counsel to investigate the Trump administration's ties to Russia and the firing of James Comey rocked the stock and bond markets, and as stocks tanked, money flowed to bonds and mortgage rates eased back a bit.
Particularly hard hit were bank stocks, which investors had great hopes would grow in value by the Trump's promised deregulation.
For some borrowers, a 30-year fixed loan below 4 percent was suddenly a reality.
On Thursday, a massive anti-corruption probe rocked Brazil, and there are widespread calls for current Brazilian President Michel Temer to resign. Law enforcement raided dozens of politicians' homes and offices, and widespread riots broke out nationwide.
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The Brazilian stock market, reacting to fears of political instability and dashed hopes of economic reform, dropped 15 percent in a matter of hours. Temer about a year ago replaced his impeached predecessor, who was also forced out over corruption scandals. The Brazilian economy has been a disaster for years, and it took very little to cause a panic.
Flight of Capital
The events in Brazil are fueling a further flight of capital into the U.S. markets, although some analysts are saying it is flowing into the U.S. stock markets, rather than mortgage-backed securities. This influx, along with a reality check of our own political situation, has helped the Dow recover some of its earlier losses and reversed the flow of money from the bonds back to stocks, which is forcing mortgage rates to start to tick up from their lows on Tuesday.
There are still many factors at play in determining the future of mortgage rates this year, and many global events will be part of that mix. European markets seem comforted by the new French President Emmanuel Macron, who plans to support the European Union, and there do not seem to be any immediate bailouts on the horizon. The Federal Reserve is very likely to increase short-term rates faster than previously expected, but that move may not impact long-term rates, at least not this year.
A big uncertainty is what the impact will be if North Korea continues to be aggressive and military action is needed to contain them. If North Korea is seen as a threat to Asia or Japan, then the financial markets there could have some very bad days coming up, and that will continue to make things unsettled.
Anything Can Happen
At the end of 2016, many analysts were sure mortgage rates would be back in the 5 percent range by the end of 2017, but now the talk is mid-4 percent. But as we know, anything can happen.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage-related questions from readers. His website and blog can be found at http://www.mtnmortgage guy.com.