How Will the Election Affect Mortgage Rates?

NoDerog / Getty Images/iStockphoto

NoDerog / Getty Images/iStockphoto

It’s no secret that mortgage rates have been ballooning lately, affecting both homebuyers and sellers — many of whom feel locked in by the lower rates they secured a few years ago. In turn, the dearth of inventory is putting pressure on home prices, leaving many would-be buyers on the sidelines. Now, with the impending election, some might wonder how this might further impact rates.

While rates have come down, as of March 21, the average 30-year mortgage rate was at 6.87% — much higher than a couple of years ago. Indeed, on March 24, 2022, they stood at 4.42%, and on March 21, 2021, at 3.17% according to Freddie Mac data.

These higher rates reflect the Federal Reserve’s recent tight monetary policy, which has taken a toll on everything — making borrowing more costly for Americans. While the Fed reiterated at its most recent two-day Federal Open Market Committee (FOMC) meeting on March 19-20 that it would start cutting rates this year, these will probably occur later than previously anticipated, due to both sticky inflation and strong economic data.

While these cuts would bring a sigh of relief to American consumers, making borrowing costs lower — it’s yet unclear when they will take effect.

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Is There a Correlation Between an Election and Rates?

Several experts argued that because the Fed is independent of politics, the election won’t affect mortgage rates.

Chief Economist Mark Zandi at Moody’s Analytics said that there isn’t any meaningful causal relationship between interest rates and presidential elections.

“At least this has been the case in recent decades,” Zandi said. “This is due in significant part to the independence of the Federal Reserve and the conduct of monetary policy from the executive and legislative branches of government.”

Chief Economist Danielle Hale at echoed the sentiment, saying that there are no consistent trends with respect to mortgage rates during an election year because elections are one of several factors that investors are considering when evaluating bond markets.

Hale explained that over the past 14 election cycles — going back to 1972 — we’ve seen everything from much higher rates post-election — as in 1980 — to much lower mortgage rates post-election — as in 1984 — to almost no change in several elections.

“In both 1980 and 1984, the rising or falling rate trend was in place before the election, undermining the argument that the vote itself was driving the trend,” Hale said, adding that the recent 2020 election was similar, with no noticeable change in the declining rate trend that dated back to fall 2018.

“A potential exception to these norms was the closely contended 2016 presidential election in which mortgage rates reversed a decline that had been in place since 2015 and climbed nearly three-quarters of a percentage point by the end of the year,” she said.

She noted, however, that the Presidential election was not the only thing moving interest rates in 2016 or other election years.

“In 2020 we also had a global pandemic, in 2016 the Brexit referendum was top of mind for bond investors, and in 2008 a global financial crisis and recession were the big macro movers,” she said.

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What Can Happen to Mortgage Rates Post-Election?

After the election, uncertainty may decrease, allowing interest rates to fall, but if one party controls both Congress and the Presidency, interest rates may remain high because markets worry about the risks of major policy change, according to Jason Sorens, Ph.D. and economist at American Institute for Economic Research.

“In 2024, decelerating inflation implies that mortgage rates will fall and markets expect that to happen. But a lot can change if inflation accelerates or investors start to worry about the potential for drastic economic policy change,” Sorens said.

What Should Homebuyers and Sellers Do?

As Joe Camberato, CEO of National Business Capital said: “Predicting how mortgage rates will behave in an election year is like trying to predict the weather.”

“While past administrations might have swayed Fed decisions, right now, the focus is on keeping inflation in check. If inflation drops, mortgage rates might follow suit,” he said.

In turn, Camebrato argued that instead of fretting over rate changes, consumers should think about the long haul.

“Mortgage rates around 6% are actually pretty reasonable historically, even if we’ve become used to super low rates lately,” he said. “If you’re itching to buy a home, especially for the long term, go for it. And, if rates do drop later, you can always explore refinancing. Plus, homes bought right before the 2008 crash have generally ended up being good investments over time.”

Another piece of advice: potential buyers should focus on what they can control and plan to adjust to what they can’t control.

“Setting a budget, making a list of must-haves versus nice to haves and cleaning up their credit and finances to prepare for taking on a mortgage are things that buyers can control,” Hale said.

She added that the macro trend in mortgage rates is something shoppers can plan to react to and a mortgage calculator can help shoppers see what changes in mortgage rates will mean for their housing budget.

“They can use this information to know whether their budget can handle some mortgage rate fluctuations or whether they would need to set a new home price target to keep monthly payments in a comfortable range,” she said.

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This article originally appeared on How Will the Election Affect Mortgage Rates?

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