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November 8, 2024

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November 8, 2024

Election Over! What Happens to Mortgage Rates Now?

Market Update

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Election over! What happens to mortgage rates now? Rates dropped below 7% this week! Will the trend continue?

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Many economists think inflation will go up because of planned tariffs that Trump has said he will impose on imports from the likes of China, Germany, Japan, Mexico, South Korea, and others.

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What is a tariff? A tariff is essentially a tax charged to the importing country. For example, if a widget comes in from Japan for $100, the U.S. currently has a low tariff with an average of 2%. The U.S. would currently charge Japan $2.00 to import the widget.

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The numbers thrown out there on new potential tariffs are 10%-20%. So instead of Japan being charged $2.00 for the import, importing countries could now be looking at $20.00 as their tax/tariff.

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The importing countries may now need to charge more for the widget to make up for the additional tariff. Instead of charging $100 for the widget, they may now need to charge upwards of $125 for the widget to maintain the same return. This translates to a higher price at the store, and a portion or all of the increase will be passed on to the consumer. This is inflation.

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Why in the world would Trump do this? Inflation during the previous Trump years was 1.9%, which is right at the Fed target of 2%. Most economists say inflation will go up with tariffs.

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We all know Trump is a negotiator given his business background. He will use the potential tariffs as leverage to try to create a stronger job market with more high-paying manufacturing and tech jobs being done in the United States. Will it work? Only time will tell.

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In the meantime, all of the above will take time to fall into place, so we likely won’t see a change in mortgage rates for a while. It is still a report-by-report analysis until there is a clear trend that the markets can confidently trade on.

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We all know there was a big pause by homebuyers prior to the election. The stock market jumped significantly right after the election to its highest levels ever. Those individuals with 401ks and stock portfolios are feeling a little bit richer and probably more comfortable proceeding with the purchase of a new home.

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It’s projected that the number of home sales will rise by over 13% nationally in 2025. Continuing to wait for lower interest rates and lower home values is highly unlikely. It’s still a supply-and-demand issue…plenty of pent-up buyer demand and a relatively low home supply.

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Don’t wait!

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Momentum is a funny thing and hard to explain. There is new energy right now, with many feeling very optimistic (some not so much) that could turn into a very strong and healthy real estate market in 2025. Buckle up for the ride!