Tax Law Makes Projections Even Harder: The Weekly Market Update

2018 In Focus
2018 In Focus

2018 In Focus

It is the first of the year and we have been inundated with projections regarding the economy, interest rates, real estate and more. It is always hard to predict the future and this year is going to be even harder to predict because of a new variable — the tax law. As we have mentioned previously, the lowering of tax rates is likely to stimulate an already strengthening economy. This should be good news for jobs, retailers and more. The question remains how strong will the economy get and what will the effects be on interest rates, oil prices — and ultimately inflation. We have already seen rates and oil prices creeping up in anticipation of the action.

When we move to real estate, the prediction game gets even harder. Economists were already predicting continued inventory shortages, more new homes coming on-line and moderating price increases. But the change in the standard and mortgage deductions will certainly have to be factored into the equation.

Here is the good news. There are four solid economic reasons to own a home and the tax deduction is only one of these four. The home will still serve as a leveraged investment, a forced savings plan and protection against inflation. As a matter of fact, we feel the tax law’s effect upon interest rates may be a more important factor in determining the direction of the real estate markets than the tweaks made in the deductions. In this regard, those who feel that rates will ultimately rise because of the economic effects of the law, may very well be inclined to purchase now rather than later.

The Weekly Market Update

Rates rose in the past week, with 30-year fixed rates moving close to the 4.00% level. For the week ending December 28, Freddie Mac announced that 30-year fixed rates rose 3.99% from 3.94% the week before. The average for 15-year loans increased to 3.44%. The average for five-year adjustables rose to 3.47%. A year ago, 30-year fixed rates averaged 4.32%, more than 0.25% higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "As we expected, rates on home loans felt the effect of last week's surge in long-term interest rates in the final, shortened week of 2017. The 30-year fixed rate increased 5 basis points to 3.99 percent in this week's survey. Although this week's survey rate represents a five-month high, 30-year fixed rates are still below the levels we saw at the end of last year and the early part of 2017. Rates on home loans have remained relatively low all year."

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.