Seems pretty clear now that it doesn’t matter what economic data shows up between now and next week.
Mortgage rates aren’t going to improve by any significant margin this week or until after the election.
Unfortunate for those who need to lock their rate and/or close this week. And the past month for that matter.
Lenders are essentially in a holding pattern and continuing to price defensively until at least next Wednesday. Likely longer…
Simply put, the outcome of the election matters more than the data right now.
Biggest Presidential Election in Years
We all know next week’s presidential election is a big one. One of the bigger ones in years. Aside from it being very contentious, a lot is at stake regarding the direction of the economy.
Thus far, the markets have priced in a Trump victory, at least in a defensive type of way.
Without getting political here (I never have any interest in doing that), it doesn’t appear that either candidate winning is helping 10-year bond yields at the moment.
The best way to track mortgage rates is via the 10-year bond yield, which works well historically because 30-year fixed mortgages often last about a decade too.
Despite being offered for 30 years, most are paid off earlier due to a refinance or a home sale.
Lately, the 10-year yield has climbed higher and higher, with most market pundits pointing to increased government spending as the culprit.
Long story short, with more government spending expected, any way you slice it, yields have gone up. Investors want to be compensated when they buy government debt (bonds).
But one could argue that this was already known several months ago, when yields were closer to 3.50% vs. about 4.35% today. What gives?
Bond Yields Are Higher Because the Worst of Everything Is Baked In
Without getting too technical here, bond yields have basically priced in the worst of everything lately. Just look at the chart above from CNBC.
Whether it’s the election outcome, possible government spending, economic data, it’s all priced in in the worst way possible.
This is why we’ve seen the 10-year yield climb nearly a full percentage point since the Fed cut rates back in mid-September.
And despite a very weak jobs report this morning, the 10-year yield climbed up another ~6 basis points.
Yes, it was a report affected by hurricanes and labor strikes, but on a normal first Friday of the month you’d likely see yields drop and mortgage rates improve given the immense weakness.
That’s not happening this week and it’s no real surprise at this point. As noted, there are bigger things on investors’ minds.
The good news is we should get clarity next week once the votes are tallied and we hopefully have a clear winner.
Of course, if things drag on, that could be bad for bond yields too. Essentially, anything and everything is bad for bond yields, and thus mortgage rates, right now.
[How Do Presidential Elections Affect Mortgage Rates?]
Mortgage Rates Could See a Relief Rally
Now the good news. Because there’s been absolutely no good news for about a month and a half, a major mortgage rate relief rally could be in store.
Similar to any other trend, once it runs out of steam, a reversal could be in store. Think about a stock market selloff. Or a short squeeze.
After a few bad days or weeks in the market, you often see stocks rally. The same could be true for bonds, which have been pummeled for over a month now.
Eventually they get oversold and there is a buying opportunity.
If bonds prices do in fact rally once this election is decided, simply due to finally getting some clarity, bond yields could sink in a hurry.
The defensive trade could unwind and mortgage rates may finally get some relief as well.
It’s never a guarantee, but given that basically everything has worked against mortgage rates for over a month, they could experience a big win as soon as next week.
Of course, economic data will continue to matter. But importantly, it will matter again after basically being kicked aside during election season.
Remember, weak economic data is generally good for mortgage 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 Lowering Rates
(photo: Paul Sableman)
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.