Once every 4 years clients hold their breath to see how election day impacts home loan rates. How does Nov 8th actually impact mortgage rate trajectory?
Hip shooters simply predict “in election years rates go up…” or “in election years rates go down.” Reality check – presidential elections alone have zero impact on mortgage rates. The actual president elect and the direction their agenda will take our nation is what can impact mortgage rates. The relationship between the president elect’s agenda and current administration’s policies can also impact what happens to mortgage rates post-election day. So as a function of the president elect, I guess one could say an election impacts rates but not in a predictable way based on just an election.
Presidential elections and mortgage rates is also a game of what the “market” thinks about POTUS Elect and their policies/beliefs. It’s not really about what you or I think. Once you make your mind up on which president is good for rates and which is not, etch-e-sketch it and then guess what the market will think. That’s what matters.
What Will Happen with Mortgage Rates (we think)
Here are our predictions:
- Probably Lower Mortgage Rates
- Candidate that causes uncertainty for the economy
- Candidate that promises lots of monetary policy and regulatory change
- Probably Status Quo for Mortgage Rates
- Candidate that creates stability for the economy
- Candidate that promises little monetary policy and regulatory change
Why do the above ideas matter? First, they matter most in the short term – meaning right after the election. Longer term it will be more about what the new president actually does and says. However, markets tend to embrace for “possibility” now rather than wait for “reality” later.
If the market feels the president elect falls into category A above, mortgage rates would likely improve primarily on a “flight to quality basis.” Simply put, sell off stocks and stuff money in safe/sound and secure bonds. Bonds do not pay well. However, anything pays better than a plummeting stock. Funds shifting from stocks to bonds leave mortgage rates lower. That is essentially why mortgage rates would likely improve under category A.
Category B is easy. If the market sees little change, there is less “possibility” for markets to react to. Less fear and worry. Therefore not quite the need to sell off stocks and as a result much less movement in mortgage rates.
The answer will be revealed Wednesday!
VOTE VOTE VOTE!!!
By Jeremy House