Markets are trading lightly, as would be expected for the day after Christmas. As we wind down the final days of 2017, we look into the future to guess what will happen with interest rates and the bond market overall. Since the Tax Reform bill is really a deficit-financed tax cut, the rising national debt will continue to provide a head-wind for mortgage interest rates. Further, the optimism within the investment world will continue to pressure interest rates higher. Although there should be a positive economic impact because of the tax reform bill, it is difficult to say what the major impact will be in 2018 or if it will take until 2019 to realize the benefit. Either way, it seems that the yield on the 10 Year Treasury Note could move up to highs seen shortly after the November 2016 election, or even higher. As we move into the summer months, we could see bond prices improve and mortgage rates head lower. We’ll provide more insight as we make our overall interest rate analysis for 2018 in early January.
Home values continue to advance at a reasonable rate, with the Case-Shiller Home Price Index reporting an annual pace of 6.2% in the last month. Overall, home values advanced at a stronger than anticipated pace in 2017. This is a good sign for the housing market as we enter a new year. Although values are again expected to advance in 2018, they are also expected to be at a slower pace than the year prior. With the Housing Market one of the stronger segments in the over-all economy, we could see a similar rate of growth continue. I would expect at least a 5.5% Rate, if not higher.
With bond prices remaining below significant moving averages, we will maintain our locking bias.