Prognosticating is Tricky
The predictions for 2017 are all over the board with regard to the economy and the housing market in particular. While major variations always exist, this year the predictions vary more widely because of two major factors. First, we have a new administration being installed and we still don’t know what policies will change and how these new policies will affect the economy. We do know that a new administration always promises change and we can anticipate these changes, but it surely makes the prediction game more interesting. Secondly, interest rates have been rising since the election. We don’t know if these increases will hold and whether they will continue. Even though rates continue to be historically low, we don’t know how higher rates will affect the economy in the long-run.
Certainly, predicting the future is always a hit-or-miss game. For example, just about everyone predicted higher rates for 2016. Even the Federal Reserve Board said they anticipated raising short-term rates several times. Looking back, this increase in rates never took place. Thus, if the Fed can’t predict the future even a few months out, then we don’t expect that market analysts will fare much better. Remember that there are always intervening variables that can affect the future. These variables can and have included natural occurrences, political events, the economics of foreign nations, or even instances of terror.
If you look back at 2016, we had the Brexit event. But looking further back, we have had intervening events such as a Tsunami, wars and many international incidents of terrorism. While we hope that these types of events do not reoccur, when dealing with an entire world of possibilities, we do know they are possible. Thus, while many market analysts are making predictions such as higher interest rates, a continuation of the stock rally and moderating housing growth, we must understand that no one has a handle on the future. Higher rates and moderating housing growth seem to be the consensus opinion, but there is always wiggle room in the prediction game.
The Weekly Market Update
Rates were up slightly for the week, continuing a trend seen for the past two months. Despite this trend, for 2016 the 30-year average of 3.65% was the lowest on record. For the week ending December 29, Freddie Mac announced that 30-year fixed rates rose to 4.32% from 4.30% the week before. The average for 15-year loans increased to 3.55%, and the average for five-year adjustables moved down to 3.30%. A year ago, 30-year fixed rates were at 4.01%, approximately 1/3% lower than today's levels.
Attributed to Sean Becketti, Chief Economist, Freddie Mac -- "On a short week following the Christmas holiday, the 10-year Treasury yield was relatively unchanged. The rate on 30-year loans rose 2 basis points to 4.32 percent, closing the year with nine consecutive weeks of increases. As rates continue to increase, home sales and affordability will continue to be a concern for housing in 2017."
Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.