Donald Trump Is Taking Office: What Does That Mean for Housing? - Quicken Loans Zing Blog

I don’t know if you’ve heard, but there’s a new person occupying the Oval Office. Donald Trump is being sworn in as president today. Whether you’re excited for America’s new president or unsure, chances are there will be changes in a variety of areas. Housing is no exception.

We sat down with Quicken Loans Chief Economist Bob Walters to discuss how the president’s economic policies could impact the housing market.

Where We Are Now

Mortgage interest rates are mostly impacted by movements in the bond market because mortgages are packaged into bonds and sold to investors. There’s no way to put this other than to say that both the stock and bond markets expected Hillary Clinton to win the election. When she didn’t, the markets had an initial drop, then stocks climbed and bonds dipped as traders tried to forecast what a Trump presidency would mean for businesses.

“Certainly, we’ve seen a big change right after the election,” Walters said. “The first two or three weeks after the election, (30-year) mortgage rates went up three quarters of a percentage point. They’ve tapered off since then. They actually have come back a little bit, and we find ourselves about a half a point higher than we were before the election.”

The bond market sold off when the stock market popped up because of optimism that the economy would get better. Walters pointed to an expansionary fiscal policy as a catalyst for this good feeling.

“Trump has said that he’s going to utilize fiscal spending more than we’ve seen in the past, meaning that he’s going to encourage the government to spend a lot more on infrastructure – and couple that with interest rates or monetary policy, and that will tend to lead to growth,” he said. “Higher growth environments often lead to rising prices, and when prices rise, inflation is increasing. Inflation is the enemy of low interest rates. Interest rates need to rise to accommodate any rise in inflation.”

Walters said the bond traders that control long-term rates, like those used for mortgages, are trying to make educated guesses about where the economy will be 10 or 15 years in the future, so some of these predictions of higher growth lead to higher rates.

The Federal Reserve has signaled that they expect inflation to continue by adding another interest rate increase to their 2017 projection dot plot – which shows the projections of members of the Federal Open Market Committee. Interest rates need to rise as inflation increases so that your money continues to hold the same value.

Still, it’s important to note that if short-term interest rates rise, long-term rates like those for mortgages don’t necessarily follow. The Fed controls short-term rates, while longer-term rates are affected by movements in the bond market.

What This Means for Housing

If you’re looking to buy a house or complete a refinance in the near future, what could this mean for you? Unfortunately, it’s hard to say.

“A lot of it depends how much (rates go up),” Walters said. “If interest rates go up slightly from here, I don’t think it dramatically changes consumers’ ability to own homes. If interest rates go up substantially, another four percentage points let’s say, that would start to have real impact on the cost of homeownership.”

One thing that might offset the effect of rising interest rates is the additional money in your savings account. There could also be an uptick in the value of some of your other assets.

“We’ve seen an increase in the stock market since the election, so it’s been beneficial for those of us who have 401(k)s or who own stock,” he said. “Generally, if inflation is rising, it can increase the price of assets. One of the biggest assets many of us own is a home, so that could be a positive effect if you see rising home prices.”

But there’s one piece of the housing affordability puzzle that has a huge impact on homeownership affordability but that we haven’t discussed yet: wages.

“If wages are rising fast enough to keep up with rising interest rates and home prices, the impact of these things is potentially minimized,” he said.

Going Adjustable

Finally, Walters said people might end up going with adjustable rate mortgages (ARMs), which have a fixed period at the beginning before adjusting annually, as opposed to fixed-rate mortgages. Fixed-rate loans are based on long-term rates, while adjustable rate loans are based on shorter-term rates. The difference between the two can be plotted on something called a yield curve.

“If it’s a steep curve, there’s a big difference between loans that have a fixed rate for three of four years and loans that are fixed for 30 years. If there’s not much of a difference, it’s a shallow yield curve. In recent years, we’ve had a shallow yield curve.”

Since the election, though, we’ve started to see the gap between fixed rates and short-term rates widen a bit, so it may make sense for more clients to take advantage of an ARM. This can be especially true when you consider that you can pick a period of time at the beginning of the ARM when the rate is fixed.

Walters said it makes a lot of sense to take advantage of an ARM when consumers think about how long they will have their mortgage before they move or refinance.

“Now we’re starting to see that yield curve steepen, and we’re seeing some benefit to taking advantage of the short-term fixed-portion of an adjustable rate mortgage,” he said. “Most people we know are not in their mortgage more than six or seven years.”

If you’re interested in buying a home or refinancing your current property, check out Rocket Mortgage® by Quicken Loans® or call (888) 728-4702. If you have any questions, leave them for us in the comments.

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This Post Has 28 Comments

    1. Hi Victoria:

      If it were up to me, ice cream would be free for all and we would all have flying cars in the next 10 years, but unfortunately, the power to make those mandates lies with Congress. It’s fun to fantasize about though. Have a great day!

      Thanks,
      Kevin

  1. I currently have an 3.75 interest rate, FHA mortgage and pay PMI. I am trying to get into a new mortgage loan that won’t require that added cost of PMI. Currently I owe $234,000 on a house that has recent comps of around $315,000 – $325,000. I have good credit 683, but had two rental properties about 8 – 9 years ago that went into foreclosure (through no real fault of my own- it was the sign of the times) I plan to retire in about 3 months and have a great verifiable retirement income source. Monthly debt Approx $2900. Currently annual income approx $62,400 – but retirement income will be approx $56,000. Can you work with this information to let me know if you can qualify me for a NON PMI mortgage? Please email me directly or through this general response

    1. Hi Cecelia:

      If your timeline is correct, the foreclosures may not matter. Your credit score is good and that’s absolutely something we can look into for you. Beyond that, I can’t comment on your approval chances on the blog. For that, you may want to speak with one of our Home Loan Experts who is licensed in your state. You can get in touch with them by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

  2. I desperately need to buy a home so that I can get custody of my kiss back due to being in a very verbal situation my kids were removed from the home until i can provide a safe secure home with me thier mom and all their brothers in the same home together. I need help with the money it takes to ourchase a home and put durniture in it .i work but dont make lots and kots juat enough to pay rent and or a mortgage but ty lots. Two are autistic as well. Thank you!!!! Sarah

    1. Hi Sarah:

      I’m sorry to hear about your situation. We can definitely look into your options. We offer a couple of low down payment loan programs that might make sense. I think your next step would be to talk to one of our Home Loan Experts. They can look into your complete financial profile and see if we have anything that’s a fit. You can get in touch with them by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

  3. Interest rates going up by 400 bases points, really? your either a snake oil salesman or worse a realtor! Do you have any idea what would happen if the interest rate went up even 2%……. Well do the math on 2% of 20 trillion, if your math is real math and not the phony garbage our government ” experts ” are throwing out on all the fake news economy shows as real stats. Your answer is that at 2% we as a nation could barely pay the interest on the debt. Does anyone have a clue to how “unbelievably broke ” ( in other words how much trouble really bad trouble ) we are in? Look south to Venezuela our fake news doesn’t show us whats happening down there because they know if our current rate of debt continues ” we are Venezuela ” and those are the real facts ie truth and Trump or superman can’t fix it. We need Prayer and lots of it, because its going to get a lot worse before it gets better. And my fear is the generation that will bear the burden of this horrific mess are not mature enough to handle it.
    God help our nation

  4. I would like to purchase a home. I owned in the past and then life happened. Have been told that I have too much student loan debt that would equal taking 1% of debt/ which makes debt ratio too high. I am on income contingency plan w student loans to repay, payments are low… how can I get around this problem of 1%?

    1. Hi Tracy:

      If you happen to qualify for a VA loan, the requirements are a little different, but in general, in order to use the actual payment you’re making right now, the lender has to see that the payment won’t increase and also that eventually the entire outstanding balance will be paid off. If you’re currently on an income-based repayment plan, your payment will increase when your income does. Therefore, the lender would have to take 1% of the outstanding balance into account. That said, I’m going to encourage you to talk to one of our Home Loan Experts to go over your situation more thoroughly. It doesn’t hurt to take a look and see if there’s anything you can do. You can give us a call at (888) 980-6716.

      Thanks,
      Kevin Graham

    1. Hi Robert:

      FHA loans have a monthly mortgage insurance charge that stays for the life of the loan in most cases. If you make a down payment of 10% or more, it comes off the loan after 11 years. That being said, you can always refi into a conventional loan in which case mortgage insurance would go away when you reach 20% equity. Hope this helps!

      Thanks,
      Kevin Graham

  5. Just closed last month 2/1/2017. Would like to refinance for several reasons. I will list a few.

    1) convert my FHA mortgage to Conventional
    2) get credit on a program that ends this year 12/2017 (Obama program)
    3) I am on disability, can work very little. Total income from both of us is 51k

    Can you help me feel more at ease with a monthly payment of $1290.00? If something happens to either one of us we would have to forfeit the house, that took over 30 months to find ( due to several reasons)

    1. Hi Tina:

      We can certainly help you look at your options to possibly lower your monthly payment as well as convert from an FHA loan to a conventional alternative. If you’d like to get started online, you can get a full refinance approval through Rocket Mortgage. Otherwise, one of our friendly Home Loan Experts would be happy to take your call at (888) 980-6716. Good luck!

      Thanks,
      Kevin Graham

  6. fact is no one knows what will happen.
    fact is it is too soon to tell
    fact is the Fed still ran by Obama person
    fact is Obama people out to cause Trump to fail.

    not sure why American’s would want their own country to fail
    but we are talking about liberals
    ‘nuf said

    1. This is Trump White House if it fail it is on him. You sound like Trump, everyone is out to get me so when I make this mess it is not on me.

  7. The old fashioned mortgage advise still holds – a 30 year fixed mortgage taken out at the low point of the yield cycle benefits most folks. Avoid variable rates unless your skilled at forecasting interest rates. Houses in most areas of the nation with high proportions of retirees often have limited appreciation possibilities. So best to borrow at low interest rates and invest funds elsewhere. Or spend them and disappoint ones heirs.

    1. Hi Peter:

      The first piece of advice you’ve listed here makes sense to a point. A fixed rate is great if you’re looking for long-term certainty. That being said, something like a seven or 10-year adjustable rate mortgage can help people get a lower rate. A recent survey by the National Association of REALTORS showed that most people only stayed in their homes for 10 years. With that in mind, someone could very well be preparing for their next move by the time the rate adjusts. If you plan on staying in the house forever, a fixed rate could well be worth it. It just doesn’t apply to everyone.

      Thanks,
      Kevin Graham

  8. In 2016, I refinanced at the beginning and the end of the year. The best and most important aspect of both times, was dealing with Andrea Nash as my main phone contact. She was very kind and settled me done when things just seemed insurmountable. Without her guidance and caring ways, I probably would have given up on doing this. Thank you very much Andrea, you are a very valuable asset to the corporation.

    1. Thanks, Rod! Your kind words mean a lot to us and I know they’ll mean a lot to Andrea. I’m glad she was able to help you get this done and better your situation even when it seemed difficult at times. I’m absolutely going to make sure this gets passed along to her. Have a great day!

      Thanks,
      Kevin Graham

  9. Yes i have a 30 year mortgage i am paying 6% interest I have the mortgage down to 80,000 have been here 17 years I am hoping to retire in 2 to 5 years I would like to be able to pay for home before I retire it is a FHA did have a bankrucy 3years ago but my credit is good need some. Guidance thank you

  10. My wife and I are in the process of building a home. We are both retired and initially we are paying cash for the home in draws to the contractor as it is being built.
    A recent revaluation by our financial advisor suggested that we keep our money (currently earning 1,75 times mortgage rates) and obtain a mortgage for the home. We have more than enough income to pay a mortgage, taxes, insurance et al. Does your company offer a loan for the home as it is constructed?
    Hoping for a reply
    John

    1. Hi John:

      Unfortunately, at this time, we only offer loans on homes when the construction is complete. I’m sorry. Thanks for reaching out!

      Kevin Graham

  11. If this means my morage is going to increase I will have to sell my house so if you can give me a company I can use I would appreciate it . Thank you for any help I can get.

    1. Hi Dianne:

      If you have a fixed-rate mortgage, your payment wouldn’t increase unless it was due to an increase in property value in which case your taxes would go up. If you’re in an adjustable rate mortgage at the end of its fixed period, your payment may go up as the rate adjusts. However, anyone that claims to know which way the market is going on any given day is probably fooling themselves. If you did end up having to sell your house, we do have a service that hooks you up with real estate agents in In-House Realty.

      Thanks,
      Kevin Graham

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