It has been an eventful year for the mortgage industry with all-time low mortgage rates, important policy decisions to boost the market, and now the US Presidential Elections. Not to forget the global pandemic that has left its mark on the mortgage industry as well. We have discussed this at length in one of our previous blogs.The turmoil around the result is far from over, but we can say now that Joe Biden is the president-elect. With that, the mortgage industry is beginning to react and we might see some impact on mortgage rates and mortgage pricing. In this blog, we will look at how US Elections affect the mortgage industry and how lenders can mitigate the changes they might face.
Figure 1 - Historically Low Mortgage Rates in 2020 Data Source: https://www.forbes.com/sites/robertberger/2020/10/23/mortgage-rates-fall-to-50-year-low/?sh=49d5bf9d3323
One might wonder, the President directly does not fix the mortgage rates, then why is the effect of the elections on the mortgage industry worth discussing. It is important to note here that Presidential elections affect the market in small ways indirectly. It is the expected policies of the incoming government, like tax cuts and government spending, that can make homes affordable or expensive for the public. This, in turn, affects mortgage rates and the mortgage industry at large. To know about policy decisions and relief measures adopted during the pandemic, read our blogs on forbearance and cash-out refinancing.
Historical Impact of Elections on Mortgage Rates
Freddie Mac has been archiving mortgage industry data since 1971. Looking at these surveys of mortgage rates during election years, it can be said that the change in rates can go in either direction. But this is based on the potential policy decisions expected from the incoming President. Elections can be seen to cause a shift of even more than 0.5% in 30-year Fixed Mortgage rates for Nov-Dec in election years, which is quite significant. We can also not ignore the other factors already pulling down the mortgage rates for this year.
Figure 2 – 30-year fixed Mortgage Rates in Election Years (Nov-Dec) Data Source: http://www.freddiemac.com/pmms/pmms30.html
Rates have moved both, up and down following elections. For example, when President George W. Bush was re-elected in 2004, and when President Donald Trump won in 2016, rates climbed. But in both elections when President Barack Obama won, mortgage rates moved down. And in the year 2000, mortgage rates remained steady and later fell in December. Predicting mortgage rate trends for election years is a tricky business. This is because experts are only relying on their experience and the perceived outlook of the incoming government. Though nothing can be said for certain.
Not just Mortgage Rates
Reach of presidential decisions is not limited to mortgage rates. Tax cuts for low and medium-income earners can increase affordability and encourage home-buying. This boosts the mortgage industry. Similarly, tariffs on building materials increase the cost of construction. This drives up real-estate prices. A recent example of this is Trump’s tariffs on Canadian lumber that increased the cost of building materials and put a burden on new housing construction.
Many times, Presidential candidates have widely different economic and fiscal agendas. These policies have a significant impact on the economy and markets. The candidate’s tax plans and job growth agendas have an important role to play in continued economic growth, which affect mortgage rates and the housing market.
What to expect from 2020 Elections
With Biden as the apparent President-elect, the mortgage industry seems to be largely optimistic. He has already promised affordable housing for all in his agenda so we are likely to see stimulus in that direction. We may also witness a change in construction regulations, including higher minimum wages for construction workers. According to experts, mortgage rates will possibly fall or stay the same in the coming months. There might be an immediate rise for a short period, but that cannot be attributed to election results alone.
This year is different because of the pandemic, which also needs to be considered while discussing mortgage rate trends. Mortgage industry experts believe that with a vaccine soon possible, as COVID starts to recede, mortgage rates will start rising again by early 2021. We’ll have to wait and watch for the next few weeks as to how the new President-elect actually affects market trends for the mortgage industry.
How the Mortgage Industry can respond
It is a volatile market during uncertain times. Lenders need to be proactive and keep themselves and their loan officers informed about the latest developments and trends. Low mortgage rates will ultimately start rising as market conditions change. Borrowers will be on the lookout for the best mortgage rates and lenders who can provide end-to-end guidance and borrowing services. This can only be achieved with smart Mortgage CRM platforms that provide information at your fingertips. inflooens is the best mortgage CRM platform that allows you to connect with your customers and provide loan officers real-time updates on Mortgage Pricing, Mortgage Rates, and Policies.
Presidential elections are an important milestone for the country. Political leadership governs the direction in which the markets may swing based on their economic and policy decisions. With a likely change in leadership this January, we can hope for good news for the mortgage industry with a second stimulus bill, the promise of affordable housing, and an extension of the eviction moratorium. But the real impact of elections will only be clear as the new government takes charge. Till then lenders should make an effort to invest in Mortgage CRM platforms like inflooens to keep loan officers informed and engage customers to build valuable business relationships.