Interest Rates and the Presidential Election

It’s Not Just About Who Won

This year’s election created numerous predictions of impact on interest rates depending on who won. In the post-election week, rates have jumped about .4%. Doesn’t sound like much, does it? While they are still at 3.97% nationwide (which is historically low), that jump means an extra $42 a month in house payment for a $250,000 home loan with 20% down. This jump was probably more of a knee jerk reaction to the election and not based on any actual news or data. However, fluctuations in interest rates are possible. They have been artificially held down in some ways since the great recession and as the economy continues to improve they have no were to go but up.

What Drives the Rates

While many people hear on the news about the Federal Reserve Bank meeting to decide on rates, that isn’t directly related to Mortgage rates. They set the federal funds rate which is the short term interest rate it uses to lend money to banks. Mortgage rates are actually not controlled by the government. They are actually based on an asset called mortgage-backed securities and are traded just like stocks on the open market.

Investors typically invest in mortgage-backed securities when they believe they see upcoming risk in the market. They feel they are safe. Now, let’s look at the environment. Many investors planned on a democratic win and had planned an investment strategy based on that. The market had already adjusted to that. However, with the “surprising” republican win, the market isn’t sure what to do right now. Because mortgage-back securities are considered safe, many investors may flock to them. Because of this new demand, downward pressure could be created on the rates keeping rates low for the near term.

Related: WHY WAITING TO BUILD MEANS MORE RISK WITH RISING INTEREST RATES

Once more policy guidance and direction comes out from the incoming administration the mortgage rates will adjust accordingly. There is no crystal ball that can give you perfect information as to what is coming. Even at 3.97% the rate is still lower than it was in January of 2016. Most consider current rates better than anything the U.S. has seen in 60 years. It is a good time to start building that new custom home!