Flight to Safety Keeps a Lid on Interest Rates
The flip side of a (very) rocky stock market so far this year is cheaper mortgages for home buyers.
That’s because investors seeking safety pile into bonds.
That drives bond prices up . . . and interest rates down (bond prices and interest rates move inversely to one another).
Bottom line: according to Edina Mortgage’s Steve Mohabir, interest rates on 30 year mortgages for borrowers with good credit have dropped from 4% a month ago to 3.75% today.
That’s in contrast to the consensus just last Fall, i.e., that Fed tightening starting in December 2015 would gradually push mortgage rates higher in 2016.
2016 Housing Tailwinds
Shaky stocks could very well be tailwind #2 for 2016 housing.
That’s because beaten-up investors are more likely to shun stocks and embrace real assets.
It doesn’t get any more “real” than your home.
Other benign factors affecting 2016 housing:
–A stronger labor market, which bolsters housing affordability; and
–Cheaper commodities, including lumber and copper (although these items typically only represent a small slice of home costs relative to inputs like labor and land).
What’s the biggest issue for Twin Cities housing this year?
Whether currently anemic supply (a hard-to-believe 12,000 units — well below 50% of peak levels) will expand enough to fuel a healthy market.
See also, “You Can’t Live in Your Stock Portfolio”: What Falling Stocks Means for the Housing Market”; “Shaky Stocks = Lower Interest Rates = Housing Market Kick“; and “Flight to Safety = Rate Drop.“
