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Housing market jitters during an election year are predictable. Even in less pugilistic eras, Realtors® have long noticed that home buyers and sellers cool their heels during presidential election years. Why? Because people are uncertain about what a new president will mean for the real estate market, and the U.S. economy as a whole. So they figure it’s wise to maintain a holding pattern until the next president is locked in place.

Now that the election is over, people are still in a state of uncertainty and the housing market has been adversely affected as interest rates have moved higher, up to 4%.

‘It is early on, but I believe the initial effect for California home sellers will be negative, at least in the short-term,” stated Tracy Sichterman, Broker/Owner of Berkeley Hills Realty.  “We have early anecdotal reports of buyers backing out of contracts or stopping their active search until “the dust settles after the election.” Interest rates also jumped .25% which has a direct relationship on buyer affordability. As a result, we may see a slowdown that surpasses the seasonal fourth quarter norm.”

The Trump victory has caused a major market reaction, with both stock and bond prices rising sharply. As previously noted, this led to a .25% increase in long term interest rates.

“Conforming 30-year fixed rates will be in a 3.75-4.0% range for ideal scenarios, versus 3.5-3.75% earlier this week. It is too early to tell if this trend will continue or if we’ll have a reversal soon”, wrote Sam Krueger, Branch Manager/Mortgage Advisor, Pinnacle Capital Mortgage. The bond markets have also responded by treasury yields leaping on expectations of a rise in inflation and growth. The 10-year yield climbed above 2 percent to hit its highest since January 15th.

Higher mortgage rates can throw a wrench into an already shaky housing recovery. Home prices have been rising dramatically in the past few months, largely due to a lack of homes for sale. During housing’s recovery from the worst crash in history, historically low mortgage rates allowed prices to gain quickly.

Current buyers may find optimistic nuggets in the immediate election fallout. As some of the competition heads back to the side-lines, there may be an opportunity for the determined buyer.  Although interest rates have crept up slightly, this will be remembered as a historically low rate. Also, President Elect Trump champions tax reform, but has not put mortgage interest deduction on the table, so a change to the mortgage interest deduction is unlikely.

For home sellers, the market may soften somewhat in the coming months. “Nonetheless, my advice to home sellers is to plug forward on the market and see what the response is. If there is a market correction or slowdown in the coming year, this may be the height of the market– even if less vigorous than before the election”, stated Ms. Sichterman.

On the plus side, we just posted an optimistic blog that quotes a continued, although more modest gain this year.  More here