Consumer sentiment has surged since the November election, as Americans become increasingly optimistic about the future of the economy and their own personal finances. But most consumers seem to understand that better economic growth comes at the cost of higher interest rates. According to data, that may be nudging them into the housing market. In the University of Michigan’s closely-watched consumer sentiment survey, the number of people who said that now is a good time to buy a home because of rising interest rates surged to the highest level in more than 20 years – one in five. It makes sense that Americans are responding to the possibility of higher rates.
Borrowing costs jumped nearly a full percentage point in the weeks after the November election. But they’re still low. Even with that late-year surge, the 2016 average for rates was the lowest on record, Freddie Mac noted last month. There’s some uncertainty about the direction of rates over the next year or so. Housing economists surveyed by MarketWatch in early December forecast an average of about 4.5% over the course of 2017.
But many economists who watch the bond market think the furious selling of Treasury’s in the weeks after the election may have been overdone. Rates on home loans generally track the direction of the benchmark 10-year Treasury yield. Whatever the precise course of rates over the next year, it’s a good sign that consumers are aware that they could be rising, and that their response is to try to get ahead of it in order to buy a home.