Both stocks and mortgage bonds are trading near unchanged levels this morning, as the markets await an announcement from the Trump Administration on their proposed tax cut plan. The announcement is set for 11:30 am MST. The expectations are for a corporate tax reduction from 35% down to only 15%, as well as a reduction to the personal tax rates as well. Although this will still need to pass the Senate and the House, investors will react to the news positively for stocks and negatively in the bond market. If this tax reform passes, it will be a lose/lose scenario for mortgage interest rates. Either it achieves its anticipated goal of stimulating economic activity, which will cause rates to rise, or it will add to the current budget deficit, which will in turn cause mortgage interest rates to rise. Not good news either way as far as interest rates are concerned.
When you hear people talk about now being a great time to buy a home, it’s mainly based on the expectation of higher mortgage rates in the future. As interest rates increase, a buyer’s purchasing power decreases. Assuming home values stay consistent or increase over time, the price of home a buyer can afford will reduce by approximately 10% for every 1% increase we see in mortgage rates. If someone can get in now, they should. A higher home value will add more to a person’s net worth as values appreciate.
With the tax plan set to be announced today, we anticipate rates continuing to rise higher. As a result, we will maintain our locking bias.