He’s back! Every January, Barry Habib, Founder and CEO of MBS Highway and mortgage and real estate market expert returns to unveil his predictions for the year.
Barry’s newest economic forecast will help explain what dynamics are in place for 2017, where the stock and bond markets are headed this year, the future direction of interest rates and housing, and how the new composition of the Fed will affect the markets.
But first, let’s take a look at how Barry’s 2016 predictions worked out.
Barry’s 2016 Economic Forecast
Prediction: The 10-year Treasury Note Yield would drop below 2%.
Actual: The 10-year began the year at 2.245%, then dropped down to 1.325% on July 6th, 2016.
Prediction: Home price appreciation would be 5% – 6%.
Actual: It was up 6.2%.
Prediction: Stocks, as measured by the S&P 500, would decline by 300 points.
Actual: Stocks indeed declined by 200 points in February from the start of the year, but then rebounded at the end of the year due to Trump Election optimism.
Prediction: The Fed would hike only once (everyone else forecasted 4 rate hikes).
Actual: Barry’s forecast of just one hike turned out to be right on the money.
Looking Ahead: Dynamics you’ll see affecting 2017
- The effects of the new Trump Administration – anticipated changes to corporate tax reform and slowing down regulatory over site have businesses optimistic.
- Inflation pressures may start to heat up – increases in wages and oil prices will move inflation higher, but may be tempered by a strong dollar.
- Home inventory levels continue to be very low – only a 4 month supply and foreclosure inventory is gone.
- Modestly higher rates – this won’t derail the housing market but will slow refinances.
- The US manufacturing sector will continue to be flat – the US has become a service economy.
- The Fed is planning three rate hikes.
Key Areas to Consider
From a bird’s eye view, stocks appear a bit vulnerable this year. We’re entering the new year with extremely high investor optimism, which can actually turn out to be dangerous. If everyone is optimistic and in the stock market, where does the new money come from to fuel prices higher?
Prediction: There could be a potential for a Stock market correction. 20,000 on the Dow seems like a given, but there could be a pullback after breaking through it.
To put this in perspective, when the Dow broke above 1,000, stocks pulled back soon after—then it took 10 years to break above it again. When the Dow broke above 10,000, stocks pulled back and it took 9 years to break above it again.
It’s not at a guaranteed part of this year’s economic forecast, but often these milestone levels are tough ceilings. With the extreme optimism, the recent surge into the stock market and the achievement of this milestone, this may be a time to see stocks take a breather and that could benefit bonds.
2. The Fed
The make up of the voting members of the Federal Reserve (below) dictate whether or not they will raise rates. In 2016, the voting members were made up of 3 Hawks, 2 Centrist members and 5 Doves – creating a dovish Fed. Since Hawks are more likely to vote for a hike and Doves are less likely to hike, you can see why they only eked out one rate hike last year.
How about the make up for 2017? Now there is only 1 Hawk, we still have 5 Doves, but those 2 Hawks positions have become Centrists. With this make up, it will be even harder for the Feds to hike.
Barry’s prediction: With the new 2017 composition of the Fed, hiking 3 or 4 times will be pretty unlikely, especially considering how much the Fed likes to drag their feet when it comes to hiking. Barry’s economic forecast comes in at 1-2 Fed Rate hikes.
The reality going into this year is low inventory, with rents rising at 4% per year. These increases add up quickly, motivating more people to buy. The housing market won’t be derailed by these modestly higher rates, especially when it comes to first time home buyers.
Meanwhile, incomes will be rising at a pace to easily support appreciation, while demand remains strong.
Barry’s prediction: 5% – 5.5% appreciation.
The main driver of rates? It’s inflation. And in 2017, rates will move higher, but it shouldn’t be anything to worry about. Global yields will rise and pressure US yields a tiny bit higher. Meanwhile, selling additional bonds will finance infrastructure projects under Trump. This excess supply is a negative for rates.
Barry’s prediction: The 10-year Treasury Note Yield will gradually rise towards 3%. This will push mortgage rates up above 4.5%. This won’t be enough to slow down purchases, but will likely slow refinances.
How did you feel about Barry’s economic forecast? How will it impact for plans for homeownership? You don’t have to figure this out all on your own! For a FREE review of your current mortgage or what you might qualify for if you’re looking to buy this year, contact us anytime, we will be happy to assist!