Will Trump Economy Derail Soaring Real Estate Prices?

Will Trump Economy Derail Soaring Real Estate Prices?Real estate prices are on the rise and the result is that America’s homeowners are getting richer. You can see rising real estate wealth in several ways but will such good news continue in a Trump Economy?

First, according to the National Association of Realtors, existing home prices in September reached $221,900, up 6.1 percent from a year earlier and the 43rd consecutive month of year–over–year gains.

Second, we’re living in homes longer, almost eight years instead of a little more than four years before the recession. “As homeowners stay in their homes longer before moving up, they are amassing more home equity wealth,” said Daren Blomquist, senior vice president at ATTOM Data Solutions.

Third, homeowner equity doubled between 2010 and 2016 according to the Federal Reserve, going from $6.2 trillion to $12.7 trillion.

Fourth, fewer homeowners are seriously  underwater, six million now versus 12.8 million in 2012 have a loan-to-value ratio of at least 125 percent according to Attom, meaning if a property is worth $100,000 the debt is $125,000.

The big question, of course, is whether rising home values will continue. Wall Street tells us that past performance does not guarantee future results. Moreover, real estate is a localized commodity, what happens in North Carolina may be very different from what happens in Arizona.

The Trump Economy and Mortgage Rates

During the past few weeks interest rates for prime mortgages have risen substantially, going from 3.42 percent during the week of October 6th to 3.94 percent for the week of November 17th according to Freddie Mac.

“Interest rates for home loans jumped almost a half-percentage point to nearly 4% in the wake of the upset win by Donald Trump in the U.S. presidential election,” reports Market Watch.

Do higher mortgage rates mean the ongoing increase in home prices will now stall or even reverse? We don’t know. We do know that higher rates tend to freeze out marginal borrowers. We also know that wages remain depressed, reaching $56,516 in 2015 according to the Census Bureau, a figure which is still 2.4 percent less than in 1999, seventeen years ago.

It may be that the rising interest rates which have accompanied the Trump presidential victory will be short-lived.  Some of the increase is no doubt in response to the bank rate increase which the Fed will likely okay in December. Also, nothing in the worldwide economy has fundamentally changed and the supply of cash continues to vastly outpace the demand for capital. In other words, we may be seeing a repeat of 2015 when mortgage rates rose toward the end of the year because of a Fed rate hike — and then fell back for most of 2016.

(Photo courtesy of Rachel Davis)

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