Election's Potential Effect On Mortgage Rates

Two questions on every mortgage applicants’ mind  “where are mortgage rates? Does it make sense to wait till after the presidential election to complete my purchase or refinance?"

Let’s be clear about one underlining theme..

Its how the election’s results will be perceived by the markets that could cause mortgage rates to move

Let’s explore further…

If Democrat Barack Obama is reelected for another term, what is poised to happen is a corporate sell off of stocks and those funds will be moved into the fixed income market, bonds, more specifically, mortgage bonds stimulating lower mortgages rates.

Why this happens: When economic news surfaces that holds the economy back from growing further, strictly based on policies, this in turn creates weaker confidence in the markets and the possibility of investment risk rises as more people feel uncertain about the future of the economy. The next best asset 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 Republican Gov. Mitt Romney is elected, Republican policy is less restrictive on regulation which spells good news at least for the 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 equities market fuels a market rally at the liquidation of bonds creating slightly higher mortgage rates.

Why this happens: traditionally speaking, but not always, as the stock market improves, mortgage rates tend to worsen and vice versa, as the stock market declines mortgage rates improve. On some trading days both stocks and bonds rally and another 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, makes rates move.

 Will mortgage rates go up or down after the election?

We would advocate paying attention to how the financial markets perceive the results of the election especially pertaining to the following areas:

• Unemployment
• Growth/Inflation
• Taxes

If the stock market or the bond market moves sharply in either direction as explained by one of these three areas, we can expect expect rates to move up or down by anywhere from an .125%-.5& in rate.

While the election’s results certainly can influence the market in one direction or another, there are three significant characteristics of the economy, keeping mortgage rates low for the foreseeable future.

1. Unemployment still remains high, just under 8%, putting pressure on stocks and weakening consumer confidence keeping money invested in bonds.

2. Federal Reserve’s commitment to purchase mortgage-backed securities/mortgage-backed bonds moving forward making the bond market on awfully attractive investment vehicle for investors weary of the economy.

3. Strong economic growth, the kind of job growth needed to spark inflation is virtually nonexistent.

Our opinion? The high unemployment rate, the Fed’s commitment to purchasing mortgage bonds and a lack of strong economic growth will keep mortgage rates low for the foreseeable future.

What this means for your next mortgage loan

If you can benefit by purchasing or refinancing now with interest rates as low as they are, take advantage. The probability of being trying to time the market to save or risk an .125%-.5% better in rate based on what the election may or may not do is a losing proposition.

Considering a refinance or purchase loan? See how low your loan can be by getting a free mortgage rate quote today. See What The Election Means For Mortgage Rates.

Read more: http://www.sonomacountymortgages.com/2012/10/election-mortgage-rates/#ixzz2BHvdVGdL