Vail mortgage column: How health insurance might impact mortgage rates
I’ve always maintained the cost of mortgage money is impacted by about everything, including the price of tea in China, but admit I got caught off guard when the hopes for Trumpcare started to implode and the financial markets’ reaction seems to indicate mortgage rates could show signs of future increases as a result.
To be exact, it was not precisely the failure of Trumpcare but, rather, this latest failure being the latest of many failures of the Trump administration, and this seems like a tipping point.
The cost of mortgage money is set by supply and demand, and the more investors who are willing to invest in mortgage-backed bonds, the bigger the supply of money. A vast amount of that money comes from foreign investors who usually see the U.S. bond market as a safe haven in times of uncertainty. Historically, as other economies teetered and tottered on the brink, the U.S. economy showed resilience and a certain safety net.
Since this past November, many foreign investors held blind faith that the man who proclaims he is the greatest dealmaker in history would somehow make a whole bunch of deals to make America great again. The U.S. dollar strengthened for a while, the markets rallied and there was hope. The money rolled in, and bonds were still popular.
But as we all are seeing, it’s not happening, and the failure of Trumpcare this week seemed to crystallize the ongoing string of failures that President Donald Trump has faced and the ever-growing sentiment that they are mainly of his own making.
Virtually none of his proposed changes have materialized, and those that have, such as withdrawing from the Paris Accord, have hardly inspired confidence in his ability to push his long-term economic agenda through.
To further complicate things for the United States in terms of attracting investors to buy our stocks and bonds, many foreign countries are showing, at least comparatively, leadership in growing their economies and the global economy is showing many signs of strength.
Globally, steel orders for Chinese steel mills are growing (which indicates a lot of manufacturing and building construction), the European economy is expanding, Brexit is not the end of the world anymore and while the U.S. jobs report is encouraging, there are other perplexing factors that may point to flat economic growth in this country (such as flat wage growth and flat demand for large consumer purchases such as cars).
Bonds losing appeal
The end result is that investors are pursuing other opportunities and questioning the long-term growth potential of the U.S. economy under the Trump administration. The U.S. dollar slipped in value within hours of Trumpcare being proclaimed dead on arrival and has dropped about 8 percent against the Euro since New Year’s.
The bottom line is that U.S. stocks and bonds are losing their appeal because investors must convert their Euros, yen and yuan into dollars to invest here and perhaps there are better investments out there that are not subject to twitter tantrums and Washington gamesmanship.
That means, in time, that demand for mortgage-backed bonds will probably decline and rates for homeowners will increase.
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.mtnmortgageguy.com.