Will the Election Affect Mortgage Rates?

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With the presidential election coming next week, there are many of you probably wondering how this election could influence mortgage rates.

Well, first of all, the important thing you need to remember is how the election’s results are “perceived” by the financial markets is what could cause mortgage rates to undulate.

So, keeping that in mind, let’s look at what may happen depending on if President Barack Obama is re-elected or if Mitt Romney becomes the next president.

First, let’s say President Obama is re-elected. Usually, when a Democrat is elected, markets expect more “regulation,” which often drives a corporate sell off of stocks. Now, some investors may choose to shift those funds from stocks to mortgage bonds, which just might help stimulate lower mortgage rates!

So why would this happen? Well, when economic news develops that holds the economy back from growing further due to specific policies, this creates a “weaker confidence” in the financial markets, and thus, the possibility of investment risk increases as more people feel uncertain about the future of the economy. An alternative investment would be the bond market because it often offers a safer, more conservative return for investors looking to protect their money in uncertain economic times.

On the other hand, let’s say Mitt Romney wins the election. Republican policy is “less restrictive” on regulation, which usually equals good news, at least for the financial markets. A reduced government regulation, especially for Wall Street investors, creates confidence that the economy has the ability to grow on its own with less oversight. A more attractive looking stock market fuels a market rally at the liquidation of bonds, which creates slightly higher mortgage rates.

So why would this happen? Based on tradition, as the stock market improves, mortgage rates tend to rise, where if the stock market weakens, the rates tend to drop. Now, on some trading days, both stocks and bonds rally, and on other days, both stocks and bonds sell off. So moving funds from one investment at the expense of the other may make rates move.

Now, will mortgage rates rise or fall after the election? Again, this comes down to how the financial markets “perceive” the results. You should definitely pay attention to this perception and what this means for the economy in the way of unemployment, growth and inflation, and taxes.

With all of this said, we know that whatever the American voters decide, mortgage rates should stay low for the near future because the Federal Reserve is committed to making the bond market an attractive investment for investors, the high unemployment continues to put pressure on stocks and weakening consumer confidence, which in turn, keeps money invested in bonds, and since a strong economic growth, which is needed to “spark” inflation, is essentially nonexistent, rates will stay low.

So there you have it. Let’s see how the election turns out!  If you have any thoughts, I’d love to hear them.  Just post a comment below.

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