Every four years, a question resurfaces in the minds of prospective U.S. homebuyers: Will the election affect mortgage rates? Some prospective homebuyers might wonder if they need to postpone their plans to move to avoid soaring interest rates. Others may wonder if they ought to purchase a new home straightaway to take advantage of plummeting rates. Keep in mind that a number of factors impact mortgage rates. To determine whether now is a good time to buy or a risky option, it’s important to explore these factors as well as the history of mortgage rates during presidential election years.
How Will the Election Affect Mortgage Rates?
It’s common knowledge that interest rates can have a major impact on the total price of buying a home. After all, a higher interest rate means that you’ll pay more interest, and paying more interest means that borrowing money costs more. As Forbes explains, there are several factors that shape the interest rate that you’re offered for your mortgage. Some of these factors are things that you can influence, including your credit score, the size of your down payment, the length of your loan term, and whether you opt for a fixed-rate or adjustable-rate loan. Other factors are out of your hands. For example, current market conditions have a major impact on the interest rates offered to borrowers.
The Market and Mortgage Rates
When it comes to setting interest rates, the Federal Reserve System, which is commonly referred to as the Fed, is America’s central bank and is responsible for setting the federal funds rate. This rate is what banks charge each other when they borrow money overnight to meet federal requirements regarding their level of cash on hand. As U.S. News & World Reports indicates, it’s also what they use as a basis for the interest rates that they charge consumers on mortgages and other loans.
What drives the Fed to shift interest rates up or down? It considers a variety of economic factors, including inflation, jobs numbers, the gross domestic product, and the performance of the stock market and the bond market. That means that political policies and events, including elections, that impact the economy at large can have an effect on mortgage rates.
An Election and Mortgage Rates
Politics have the potential to influence the economy, the economy shapes the decisions of the Fed, and the Fed’s actions impact mortgage rates. What does that mean for mortgage rates in an election year?
In and of itself, it means surprisingly little. While specific current events often have a major impact on current mortgage rates, the general fact that it’s an election year doesn’t seem to tie into any strong trend in interest rates. In fact, a 2012 review from Marketwatch looked at the historical yields on the 10-year Treasury note. After examining more than 50 years of data for clear signs that interest rates tended to go higher or lower than average in the months preceding a presidential election, no discernible pattern was found. To put it simply, there’s no evidence that would lead a reasonable person to believe that election years automatically move interest rates in a particular direction.
Reviewing the numbers for recent presidential election cycles offers similar findings. The Mortgage Reports assembled information on the behavior of interest rates during past election years:
- In 2004, interest rates were fairly stable, sitting at 5.72% in October and 5.75% in December.
- In 2008, interest rates delighted borrowers with a sizable post-election drop, falling from 6.2% in October to 5.29% in December.
- In 2012, interest rates barely shifted, moving from 3.38% in October to 3.35% in December.
- In 2016, interest rates soared, climbing from 3.47% in October to 4.2% in December.
It’s 2020 and another election year. How will the election affect mortgage rates? Past performance doesn’t provide any obvious answers to that question, and predicting the movement of interest rates is always tricky. That’s why experts often say that they best time to buy a home is when you’re ready to buy a home.
If you’re ready to buy a home or you’re interested in refinancing, PrimeLending of Denver is ready to assist you. We look beyond the numbers to learn your unique story and offer personalized service, expert guidance, and superior technology to help you reach your housing goals. Contact us today to explore the possibilities.