On Wednesday evening President-elect Donald Trump took to Twitter to congratulate himself on reports of rising holiday spending and increased consumer confidence. But as some animal spirits rev up in the wake of the 2016 presidential election, new data indicates the so-called Trump rally in interest rates may cloud the U.S. economic outlook at the outset of 2017.
Since Trump won the election, interest rates globally have surged as investors position for a more stimulative and growth oriented White House. This optimism has bolstered the shares of financial sector stocks and caused the Dow Jones Industrial Average to surge nearly 10% since Election Day. However, it’s also caused the 30-year fixed mortgage rate in the United States to rise from about 3.5% on Election Day to nearly 4.2%, making it more costly to finance a home purchase.
As mortgage rates have surged, many on Wall Street are waiting to see how it will impact the recovering U.S. housing market. On Tuesday, The Case/Schiller composite of home prices in 20 cities rose 5.1% year-over-year, with the index reaching a new post-crisis high. But as prices and mortgage rates rise, there are signs home buying demand is cooling off.
The National Association of Realtors reported on Wednesday pending home sales dipped in November to their lowest level in ten months. The NAR’s Pending Home Sales Index, which is considered a forward looking indicator on Wall Street because it tracks purchase signings, declined 2.5% to 107.3 from 110.0 in October. After two successive monthly declines, the index is now 0.4% below last November and is at its lowest reading since January 2016.
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