Published November 7, 2024
How Will the Election Results and Fed Meeting Influence Mortgage Rates?
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So, here’s the reality: mortgage rates are still through the roof. Even with the recent Fed meeting and election, the rates haven’t budged downwards like some expected. And here's why—despite the fact that the economy isn't exactly booming right now, there's enough short-term optimism in the market to keep rates elevated.
Why Are Rates So High?
Market Optimism (Yes, Even Now): Although the economy’s facing some serious challenges, the stock market has been on a bit of an upswing, reacting to hopes of growth or stability from recent political changes. This kind of optimism pushes mortgage rates up because investors are shifting towards stocks and other high-risk assets, leaving bonds (and their usually lower yields) in the dust.
Inflation Concerns Linger: Inflation isn’t as high as it was, but it’s still above where the Fed wants it. Lenders are cautious about inflation eating into the value of long-term loans, which means they’re keeping mortgage rates high to offset this risk.
Fed Rate Cuts Don’t Directly Lower Mortgage Rates: While the Fed might make a small rate cut—say, 0.25%—that’s more of a signal than an actual driver for mortgage rates. These cuts typically affect short-term borrowing costs, like credit card rates or car loans, not long-term mortgage rates. So even if the Fed cuts rates, don’t expect mortgage rates to follow suit right away.
Market Optimism (Yes, Even Now): Although the economy’s facing some serious challenges, the stock market has been on a bit of an upswing, reacting to hopes of growth or stability from recent political changes. This kind of optimism pushes mortgage rates up because investors are shifting towards stocks and other high-risk assets, leaving bonds (and their usually lower yields) in the dust.
Inflation Concerns Linger: Inflation isn’t as high as it was, but it’s still above where the Fed wants it. Lenders are cautious about inflation eating into the value of long-term loans, which means they’re keeping mortgage rates high to offset this risk.
Fed Rate Cuts Don’t Directly Lower Mortgage Rates: While the Fed might make a small rate cut—say, 0.25%—that’s more of a signal than an actual driver for mortgage rates. These cuts typically affect short-term borrowing costs, like credit card rates or car loans, not long-term mortgage rates. So even if the Fed cuts rates, don’t expect mortgage rates to follow suit right away.
What Needs to Happen for Rates to Drop?
Ironically, we’d need some “bad” economic news to really shake up the rate situation. If job growth slowed down significantly, or if consumer spending took a hit, it could make lenders less cautious about inflation and risk. This would ease the pressure on mortgage rates and potentially bring them down. Right now, though, the economy is in this strange middle ground—facing issues but not slowing down enough to justify lower rates.
Slowing Job Growth: A marked slowdown in job growth could ease inflation concerns and lead lenders to reduce rates.
Lower Consumer Spending: A decrease in consumer spending could further ease inflation pressure, allowing mortgage rates to cool off as the economy slows.
Increased Demand for Bonds: If the economy cools and investors return to bonds as a safer investment, bond yields would drop, likely bringing mortgage rates down with them.
What Should Borrowers Do?
If you’re hoping for lower mortgage rates in the short term, it’s best to be prepared for the current levels to stick around a while. Here are a few tips:
Stay Financially Ready: If rates suddenly dip, having your credit score, savings, and finances in good shape means you’ll be ready to lock in when the time is right.
Consider a Rate Lock: Some lenders offer options to lock in today’s rate for a set period. This could protect you from rate hikes while you wait and see if rates go down.
Keep an Eye on Economic News: Watch for signs of a slowing economy—lower job numbers, reduced consumer spending, etc. If that happens, it could be a signal that mortgage rates might start to cool off.
The Bottom Line: What to Do if You’re Looking to Buy, Sell, or Refinance
If You’re Looking to Buy
Historically, home prices tend to rise after an election as market activity picks up. If mortgage rates eventually drop, it could trigger a buying frenzy, making the market more competitive and potentially pushing up home prices. Right now, with rates high, appreciation has slowed, making this an ideal time to buy if you’re financially ready. You’re less likely to face rapid price increases, and if rates fall after the economy readjusts, you’ll have the option to refinance. This lets you secure a home before the market heats up and positions you to benefit from future rate drops.
Historically, home prices tend to rise after an election as market activity picks up. If mortgage rates eventually drop, it could trigger a buying frenzy, making the market more competitive and potentially pushing up home prices. Right now, with rates high, appreciation has slowed, making this an ideal time to buy if you’re financially ready. You’re less likely to face rapid price increases, and if rates fall after the economy readjusts, you’ll have the option to refinance. This lets you secure a home before the market heats up and positions you to benefit from future rate drops.
If You’re Looking to Sell
If you’re planning to sell, this could be a strategic time, especially with a slight uptick in buyer demand following the election. With rates high, some buyers may hold back, but with inventory still relatively low in many areas, you may still see solid demand, especially if your property is priced competitively. Keep in mind that if rates drop, competition will likely increase, which could benefit you even further if you’re positioned and ready to list.
If you’re planning to sell, this could be a strategic time, especially with a slight uptick in buyer demand following the election. With rates high, some buyers may hold back, but with inventory still relatively low in many areas, you may still see solid demand, especially if your property is priced competitively. Keep in mind that if rates drop, competition will likely increase, which could benefit you even further if you’re positioned and ready to list.
If You’re Considering Refinancing
If refinancing is on your radar, it’s wise to stay informed on economic trends and prepare for the opportunity. Here’s what to watch:
Monitor Economic Data Closely: Watch for signs of inflation cooling below the Fed’s 2% target, or indicators like slowing job growth and consumer spending, which could lead to lower mortgage rates.
Evaluate Your Current Loan and Finances: Refinancing can help if you’re aiming to lower payments or move to a fixed rate. Keep your credit score strong and finances stable so you can qualify for the best rates when the time comes.
Consider Costs and Timing: Refinancing typically comes with closing costs between 2-5% of the loan amount, so ensure the potential savings are worth the expense.
Stay Connected with Your Lender: Many lenders offer tools to track the market and notify you when favorable rates are available. Refinancing doesn’t require waiting for a “perfect” rate; it’s about finding the right rate that aligns with your goals.
If refinancing is on your radar, it’s wise to stay informed on economic trends and prepare for the opportunity. Here’s what to watch:
Monitor Economic Data Closely: Watch for signs of inflation cooling below the Fed’s 2% target, or indicators like slowing job growth and consumer spending, which could lead to lower mortgage rates.
Evaluate Your Current Loan and Finances: Refinancing can help if you’re aiming to lower payments or move to a fixed rate. Keep your credit score strong and finances stable so you can qualify for the best rates when the time comes.
Consider Costs and Timing: Refinancing typically comes with closing costs between 2-5% of the loan amount, so ensure the potential savings are worth the expense.
Stay Connected with Your Lender: Many lenders offer tools to track the market and notify you when favorable rates are available. Refinancing doesn’t require waiting for a “perfect” rate; it’s about finding the right rate that aligns with your goals.
