Will Mortgage Rates Drop After the Election?

The Real Connection Between Politics and Mortgage Rates

As the 2024 U.S. election nears, discussions are heating up about its potential impact on mortgage rates. While some may anticipate a clear direction for rates after the election, the reality is more complex. Recent economic data, investor sentiments, and broader financial trends all play significant roles in shaping the current mortgage landscape.

Current Mortgage Rate Update

Today’s mortgage rates remain elevated compared to last year, and despite mixed economic signals, rates haven’t shown a significant downward shift. Many media reports may cite lower rate averages from prior surveys, but real-time daily averages reveal that current rates are staying stubbornly high. Even recent economic data, like the weaker-than-expected jobs report, hasn’t done much to ease rates, suggesting that other factors may be weighing more heavily on the market.

The Election’s Potential Influence on Rates

The relationship between elections and mortgage rates is a complex one. There’s a longstanding association in financial circles that certain political outcomes can impact rates. However, there isn’t a straightforward cause-and-effect relationship here. Several high-profile investors have noted that a Trump victory, especially if it means full Republican control in Congress and the presidency, could lead to higher rates. This isn’t necessarily about the candidate himself, but rather the implications of one party holding sway over both the executive and legislative branches, which could potentially lead to increased spending or tax cuts, putting upward pressure on interest rates.

However, this expectation is more of a correlation rather than a certainty. It’s important to remember that multiple economic events—like recent data releases and market trends—contribute to rate fluctuations. Relying solely on election outcomes to predict rates can be misleading.

Mixed Economic Signals from Recent Data

October’s economic data, especially the most recent jobs report, has sent mixed signals to the market. Typically, a weak jobs report with a much lower payroll figure would lead to a reduction in rates, as it suggests slower economic growth. The October report revealed a payroll increase of just 12,000, well below forecasts. Yet, rates didn’t drop in response.

Investors took the low payroll count with some skepticism due to temporary factors like extreme weather and other short-term impacts. Furthermore, while payroll numbers were lower, other aspects of the report painted a more positive economic picture. The unemployment rate held steady, and wages, along with hours worked, slightly exceeded expectations. These aspects suggest that the underlying economy might not be as weak as the low payroll figure would indicate.

Why the Market Isn’t Banking on a Post-Election Rate Drop

For those waiting for rates to drop post-election, it’s worth noting that traders are already factoring in the potential outcomes. If investors were confident that rates would drop after the election, they’d have likely begun adjusting their portfolios to anticipate that shift. The fact that rates remain high indicates a general lack of certainty about any immediate, significant rate reduction following the election.

A few key factors contribute to this cautious approach:

• The Fiscal Outlook for Both Parties: Investors are concerned about the fiscal policies likely to follow either candidate’s victory. Both parties have agendas that could add to the national debt, requiring increased Treasury issuance and, potentially, higher rates.
• Pre-Election Sideline Strategy: Many investors prefer to wait on the sidelines before a major event like a national election. This approach allows them to make more informed decisions once there’s greater clarity on the policy directions and economic outlook.
• Memory of Past Rate Spikes: Many traders still recall the 2016-2018 rate hikes that followed Trump’s election, particularly when fiscal policies increased government borrowing needs. While this memory alone doesn’t dictate current rates, it’s part of the backdrop that keeps investors wary of a clear-cut post-election rate drop.

What This Means for Homebuyers and Homeowners

The uncertainty surrounding mortgage rates post-election can be confusing for prospective buyers and those considering refinancing. While it’s tempting to hold off on decisions in the hope that rates will drop, it’s essential to consider the broader market environment.

Interest rates are influenced by a web of factors, from fiscal policies to economic data. A potential rate drop after the election isn’t a given. In fact, without a clear economic downturn or shift in the fiscal landscape, mortgage rates may remain elevated or even rise depending on subsequent data releases and fiscal policies.

Looking Ahead

The post-election period will likely bring some market volatility, but it’s impossible to say definitively whether rates will rise or fall. Waiting for a rate drop could lead to disappointment if the market doesn’t react as expected. For buyers or homeowners contemplating a mortgage decision, consulting with a mortgage professional about current rates and long-term strategy may be wise rather than waiting for a potential, yet uncertain, drop in rates.

The mortgage market is complex, with various factors at play. The election is only one piece of the puzzle, so staying informed and working with experts can help you make the best decision in the current rate environment.