I am not an economist, but having been in the industry a while, I am an “observationist” and I do like to plan ahead for changing market conditions. The so called “Trump Factor” is no different and if you are in the real estate market or plan to be, you should be considering the impact as well.
Now that he has been sworn in as president, it does not matter if you excited about the new president or totally upset, the fact is there will be many changes in many areas, and the real estate industry is no different.
What’s Happened So Far?
Well, mortgage rates are primarily affected by up and down movements in the bond market. Why? Because most mortgages are packaged as some type of bond transaction and sold to investors. Bottom line is that most expected Hillary to win the election. The upset victory by Trump resulted in an initial drop in the markets and then the stocks rebounded and kept going. As stocks climb, bonds usually dip due to a bond sell off.
So, we have seen a substantial change after the election. Mortgage rates did rise slightly but have since tapered off. The bond market sold off when the stock market popped up because of optimism that the economy would get better.
Also, if Trump’s platform holds true, he is going to increase fiscal spending and invest in infrastructure. If this happens in conjunction with interest rates and monetary policy, this will lead to growth, new jobs, more money circulating, etc. Higher growth means rising prices (inflation). Inflation means higher interest rates to curb inflation and the viscous circle will begin.
Where will the economy be in 3, 5, 10, 15 years from now. It’s an educated guess at best. But if growth is in fact higher, rates will be as well.
Still, we must keep in mind that even if the prime rate does start to rise, there is no guarantee that longer term mortgage rates will rise as the prime is affected by the Bank of Canada and mortgage rates are affected by bond rates.
Ok, so what does this mean?
Bottom line, is it’s not clear or predictable yet. A lot still depends on if rates go up and by how much. Slight increases won’t change consumer or lender mentalities that much. However, a substantial increase would have a real impact.
In addition, I have not discussed the impact of the mortgage rule changes late last year, and although that is not the purpose of this writing, it cannot be discounted and these rule changes can affect interest rates and the market as a whole.
So, what to do is be prudent as always. If Trump succeeds, the US economy should do better and that would result in higher wages, inflation, etc. Likely, higher rates south of the border. If there is spill over and our economy mirrors some of the impact, then you can expect the same here.
The markets, real estate included, are largely driven by consumer sentiment and emotions. Right now, real estate is the “thing to do” and in our market at least, expect things to remain positive with very attractive interest rates in the near future. Long-term, who knows. Regardless, real estate has had its ups and downs over the years. Land, brick and mortar always seem to be a good bet in the long run.
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