Economic Commentary This Week
The Confidence Factor
There are many questions which have arisen because of the movements in the stock market and interest rates. For example, how high will interest rates need to go in order for investors to start thinking that they can achieve better returns than the stock market? That seems far-fetched because the stock market has done so well since the great recession, with the S&P gaining an average of over 10% per year. But, keep in mind that these gains have included a rebound from sharp losses during the recession and were fueled by record low interest rates.
And where would one go to achieve these better returns? One possible place would be real estate. One reason rates are rising is because recently, inflation has become a factor. Well, inflation has affected rents being paid and home prices for some time. If someone purchased a house five years ago, chances are they have done very well — whether they are living in the home or it is an investment property.
As we have said, this year’s wild ride has made it even tougher than normal to make predictions. It is possible that these gyrations could start affecting economic growth, despite the stimulus of the tax legislation. Investor and consumer confidence are really important factors — and neither likes to witness the uncertainty that volatility brings. The best news would be for the markets, rates and inflation all to calm down a bit as spring approaches. Next week’s jobs report could go a long way to convince the masses that everything is on-track and not overheating — if we don’t get a surprise on the low or high side.
The Weekly Market Update
Attributed to Len Kiefer, Deputy Chief Economist, Freddie Mac –“Fixed rates on home loans increased for the seventh consecutive week, with the 30-year fixed rate reaching 4.40 percent in this week’s survey; the highest since April of 2014. Rates on home loans have followed U.S. Treasurys higher in anticipation of higher rates of inflation and further monetary tightening by the Federal Reserve. Following the close of our survey, the release of the FOMC minutes for February 21, 2018 sent the 10-year Treasury above 2.9 percent. If those increases stick, we will likely see rates continue to trend higher.”
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.