Housing Rates Are in a Holding Pattern Until After the Election

It seems clear now that it doesn’t matter what economic data comes out between now and next week.

Loan rates will not improve by any significant margin this week or until after the election.

Unfortunately for those who need to lock their rate and/or close this week. And last month for that matter.

Lenders are essentially in a holding pattern and are continuing to price defensively until at least next Wednesday. About a long time…

Simply put, the election result is more important than the data right now.

Biggest Presidential Election in Years

We all know that next week’s presidential election is a big one. One of the biggest in years. Despite the controversy, there is much at stake in terms of economic sustainability.

So far, markets have priced in a Trump victory, at least defensively.

Without getting political here (I have no interest in doing that), it doesn’t appear that either candidate wins is helping the 10-year bond yield yet.

The best way to track mortgage rates is by using the 10-year bond yield, which historically works well because 30-year fixed-rate bonds typically last about ten years.

Despite being offered for 30 years, most are paid up front due to refinancing or selling the home.

Recently, the 10-year yield has climbed higher and higher, with many market experts pointing to increased government spending as the cause.

Long story short, with more government spending expected, any way you cut it, profits are up. Investors want compensation when they buy government debt (bonds).

But one could argue that this was already known a few months ago, when the yield was close to 3.50% vs. about 4.35% today. What gives?

Bond Yields Are High Because The Worst Is Baked

Without getting too technical here, bond yields are at their worst value lately. Just look at the chart above from CNBC.

Whether it’s the outcome of an election, potential government spending, economic data, everything is priced in the worst possible way.

That’s why we’ve seen the 10-year yield rise by almost a full percentage point since the Fed’s rate cut back in mid-September.

And despite a very weak jobs report this morning, the 10-year yield rose another 6 basis points.

Yes, it was a report affected by hurricanes and labor strikes, but a typical first Friday of the month could see yields drop and loan rates improve given the significant weakness.

That’s not happening this week and it’s not really surprising at this point. As noted, there are bigger things on the minds of investors.

The good news is that we should get some clarity next week when the votes are counted and hopefully there is a clear winner.

Of course, if things continue, that could be bad for the bond’s maturity as well. Basically, anything and everything is bad for bond yields, as well as mortgage rates, right now.

[How Do Presidential Elections Affect Mortgage Rates?]

Real Estate Rates May See Relief Rally

Now the good news. Because there is absolutely no good news for about a month and a half, there may be a big meeting to help the amount of the loan.

As with any other trend, once it’s over, a change can be expected. Consider a stock market selloff. Or a short squeeze.

After a few bad days or weeks in the market, you usually see a stock. It could be the same with Bonds, who have been in jail for over a month now.

Finally they are on sale and there is an opportunity to buy.

If bond prices do in fact rally once this election is decided, simply because they finally get clarity, bond yields could sink quickly.

Defensive trading may ease and loan rates may experience relief.

It’s not a guarantee, but given that basically everything has worked against mortgage rates for more than a month, they could get a big win as soon as next week.

Of course, economic data will continue to be important. But importantly, it will be important again after being kicked aside during the election.

Remember, weak economic data is generally good for loan rates, so if unemployment continues to rise, and inflation continues to fall, rates should come down over time as well.

Read on: Mortgage Lenders Take Their Time to Lower Rates

(Photo: Paul Sableman)