Published: Sat, December 03, 2016
Economy | By Melissa Porter

Following the election, mortgage rates show no sign of slowing down

Following the election, mortgage rates show no sign of slowing down

WASHINGTON (AP) - Americans bought homes in October at the fastest pace in almost decade, helped out by low mortgage rates that have since started to climb following the presidential election of Donald Trump.

Mortgage giant Freddie Mac said Wednesday that the average rate on a 30-year fixed rate loan shot up to 4.03 percent, the highest since July 2015 and up from 3.94 percent a week earlier.

The increase in interest rates, which is tied to trading and sales of U.S. Treasury notes, has been fueled by seemingly contradictory factors. That is largely because bond investors think the president-elect's plan to cut taxes and spend massively on roads, bridges, airports and other infrastructure could ignite inflation.

Property investors were dealt a steeper rate hike. One thing is sure, as we enter such unchartered waters, the T&Cs of all new mortgage contracts are likely to be far tighter than were the ones taken out several years ago. On Thursday, the Dow Jones industrial average set a record high at 19,083.

Falling mortgage rates helped boost sales for much of the year, but rates surged following this month's presidential election. Given the official cash rate is now drastically lower, the mortgage rate discrepancies are particularly significant.

Say a borrower locked in a variable rate of 2% versus a fixed rate of 2.5%. One positive for millennials is that the robust pace of home price appreciation has lifted many current homeowners out of negative equity. The median price of a previously occupied US home has increased 6 percent during the past year to $232,200.

TD Bank (TSX:TD) is hiking rates for fixed mortgages with longer amortizations and all mortgages on rental properties. By year five, the variable rate loan would be more expensive.

"Certainly there are households on the margin where the difference between 3.5 and 4 percent is the difference between qualifying for a loan and not qualifying for a loan", said Ralph McLaughlin, chief economist at housing data provider Trulia.

In additional comments in Freddie's survey, Becketti said that the rising rates could lead to a spur of homebuying.

Should rising rates finally put a lid on demand for real estate, it will be so long to the "Obama recovery" - at least there's a new regime that can take the blame for the unwind of the largest financial asset bubble in history. So, in this example, the highest the interest rate could ever get on the 7/1 ARM is 8.125 percent (5 percent above the starting 3.125 percent rate).

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