Two questions on every mortgage applicant’s mind:
- What are the current mortgage rates?
- Does it make sense to wait until after the presidential election to complete my purchase or refinance?
Let’s be clear about one thing: It’s how the election’s results will be perceived by the financial markets that could cause mortgage rates to gyrate.
If President Barack Obama is re-elected: Typically when a Democrat is elected markets expect more regulation, which often drives a corporate sell off of stocks. Some investors may choose to shift those funds from stocks to mortgage bonds, which may help stimulate lower mortgage rates.
Why this would happen: When economic news surfaces that holds the economy back from growing further, strictly based on policies, this creates weaker confidence in the financial markets, and the possibility of investment risk rises as more people feel uncertain about the future of the economy. An alternative investment vehicle is the bond market because it offers a safer, more conservative return for investors looking to protect their money in uncertain economic times.
If Mitt Romney is elected: Republican policy is less restrictive on regulation, which spells good news, at least for the financial markets. Macro-level reduced government regulation, for Wall Street investors, creates confidence that the economy has the ability to grow on its own with less oversight. A more attractive looking stock market fuels a market rally at the liquidation of bonds, creating slightly higher mortgage rates.
Why this would happen: Traditionally speaking, but not always, as the stock market improves, mortgage rates tend to rise and vice versa. On some trading days both stocks and bonds rally, and on other trading days, both stocks and bonds sell off. Stocks and bonds are the yin and yang of the financial markets; moving funds from one investment at the expense of the other may make rates move.
Will mortgage rates rise or fall after the election?
Pay attention to how the financial markets perceive the results of the election and what that means for the economy in the following areas:
If the stock market or the bond market moves sharply in either direction as explained by one of these three areas, we can expect rates to move up or down by anywhere from 0.125 per cent to 0.5 per cent.
While the election’s results certainly can influence the market in one direction or another, there are three significant characteristics of the economy that should keep mortgage rates low for the foreseeable future:
- The Federal Reserve is committed to purchasing mortgage-backed securities/mortgage-backed bonds moving forward, making the bond market an attractive investment vehicle for investors.
- The unemployment rate still remains high, just under 8 per cent, putting pressure on stocks and weakening consumer confidence, in turn keeping money invested in bonds.
- Strong economic growth — the kind of job growth needed to spark inflation — is virtually nonexistent.
If you can benefit by purchasing or refinancing now with interest rates as low as they are, take advantage. The probability of trying to time the market to save or risk an extra 0.125 per cent to 0.5 per cent based on what the election may or may not do is a losing proposition.
DON’T MISS: 9 Reasons You Shouldn’t Retire Just Yet >
This story was originally published by Zillow.The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.
Business Insider Emails & Alerts
Site highlights each day to your inbox.