Vail Daily column: Political climate may keep rates low
July 22, 2016
To say the world could collectively use a good dose of Valium right now would likely be an understatement. Indeed, the summer of 2016 could be viewed as the summer of world's collective discontent.
Politically, our nation has never been so divided, about the only thing everyone can agree on is their favorite candidate is the lesser of the evils. Racial tensions are high. Concerns about terrorist attacks lurk on everyone's mind. Other countries view our elections as a circus and have to wonder what is next, and are facing ongoing social and economic issues of their own.
While the economy seems to show signs of strength, there are also soft spots and insecurities about longterm growth and the ability to withstand bumps in the road. The recent stock market swings tied to Brexit are indicative of how vulnerable the economy can be on a bad day.
Throughout the past decade, trillions of dollars in cash have been parked on the sidelines in boring, yet safe, investments; mainly bonds. While a huge amount of money has come out to play the past few years, investors remember the good old days of low, but safe, returns in bonds and have few qualms about dumping stocks and running for the cover of bonds whenever there is a sound of thunder on the horizon. Many investors became quite comfortable buying and selling bonds, and seem to have remembered their lessons.
And the way the world works is that when money flows to bonds, longterm interest rates stay low. This has played out in rates in the mid-to-high-3 percent range for most mortgages for the past several months.
While this has not generated an extraordinary amount of refinance activity, because millions of homeowners already had rates in the high 3-to-low-4 percent rang, it has gotten a lot of potential buyers off their fences and kept the demand for homes at a healthy pace.
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One dynamic that remains to work out here in the housing equation is the impact of renters. After millions of homeowners lost their homes or had severe credit problems during the recession there was a dramatic surge in renters because these people could not qualify for a loan. In addition, millions more millennials witnessed that real estate was not a fool-proof investment and decided to rent homes instead of owning.
The result was that millions of homes were purchased and offered for rent. As time heals credit wounds, more and more of those people are coming back into the home-buying market. This is creating an exodus from rental housing, which creates a market imbalance that will likely take several years to correct itself. Landlords will start to find selling their investments are better than continuing to rent.
In Eagle County, buying or renting a home has long been a challenge, but buying a home with a mortgage rate below four percent makes it a lot easier than when rates were at seven or eight percent. There is a tight inventory, and homes that are well priced are moving quickly. Once the elections are over in November, the world will likely have somewhat less uncertainty at least in one arena, and that could lead to higher rates.
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.