Real Estate News

What the new Dow figures could mean for mortgages

Published: 31 Jan 2017

The Dow Jones Industrial Average recently surprised many by reaching a record high of 20,000 points. According to The Wall Street Journal, this latest accomplishment is part of a series of sporadic benchmarks seen over the years. The Dow first closed over 1,000 in 1972, and it's been nearly 18 years since it exceeded the 10,000 mark in 1999.

This has led to skepticism about the possible repercussions, including in the world of mortgages. So far, rates seem to be increasing, presenting a possible hurdle for buyers unsure of the future. There also appears to be disparity between different types of mortgages and their accompanying trends over the years.

Comparing the paths
NerdWallet recently used survey results to show the different trajectories of 5/1 ARM rates, 15-year fixed mortgages and 30-year fixed mortgages. Of these, the last placed far higher on the rate index, with a figure of 4.46 percent as of Jan. 26.

However, though it's been several points above the trends of its fellow mortgages, the 30-year fixed mortgages there have been somewhat volatile during the measured time period. The upward spike only dates back to Jan. 24. Before a spike between the 19th and 23rd, this level of mortgage was firmly far lower than the 4.5 percent mark.

Could there be little change overall?
Despite the historic shifts on Wall Street, not everyone predicts an upset in response to the new Dow activity. National Mortgage News spoke to Atlantic Bay Mortgage Group President of Strategic Growth Justin Caplan about the impacts of the average.

"It'll probably put some upward pressure on interest rates but I don't think it'll be substantial," Caplan said. "As long as people have confidence in the economy and jobs, it'll be very good for the housing market."

The source itself was less optimistic, suggesting that mortgages could cost more money as a result of the high Dow performance. The mortgage rate 10-year benchmark supposedly paralleled the Dow's upward rise, but this could change in the future, possibly leaving the exact results harder to predict.

Pressures to buy
One outcome that does seem to already be in effect is the push for homeowners to take advantage of the current mortgage rates before they continue surging. MarketWatch commented on this, comparing the most recent level of 30-year fixed-rate mortgages with a 15 percent jump in the amount of buyers "borrowing forward" in advance of the challenging market.

The MarketWatch piece brought other related factors into play as well, noting that home inventory has recently dropped, along with a historic low for borrowing costs. Somewhat paradoxically, the source also said that consumers are steadily optimistic about the future, even when there are possible high rates on the horizon.

Watching the Federal Reserve
Other forces could also influence what conditions future buyers have to work with. Earlier in January, the Wall Street Journal chronicled the possible movements of the Federal Reserve, which could increase interest rates through as many as four different hikes throughout 2017.

Multiple regional presidents from different states said they foresee three such raises in the coming year, with each one budging the rates upward by a quarter of 1 percent.  However, this is, of course, dependent on the overall economic conditions. Even if this doesn't directly impact mortgages, it could influence the general economy and leave a consumer's finances in a different state.

At the tail end of 2016, the Federal Reserve raised interest rates, and although Fortune said this was a "widely expected" outcome, it also noted that this is a relatively rare occurrence, with the last such rate reversal occurring a year previously.