Market Commentary: Mortgage interest rates will likely trade in a very narrow range during the run-up to Tuesday’s election. Most traders will likely choose to remain on the sidelines as they await the official results.
Over the longer-term the mortgage market – as well as the stock market – tends to be apolitical. Yet in the short-term, election results may create some volatility.
I am not a political pundit nor am I endorsing or campaigning against any candidate – that is choice for you to make – without influence from me or anybody else. My responsibility, as I see it, is to help you and your borrowers anticipate changes in the direction of mortgage interest rates.
As I mentioned earlier in this commentary the post election results may, temporarily, create some noticeable volatility in the mortgage market.
Financial commentary across the world seems to have converged on the loose assumption that a Romney victory would be good for stocks and an Obama re-election would tend to favor steady to perhaps lower interest rates on everything from Treasury debt obligations to single-family mortgages.
Mike Dolan, reporter for Reuters News, summarizes market participants’ thinking in this manner – a Romney victory would likely make it easier for the country to dodge the looming December 31st “fiscal cliff” because of the support almost certain to come his way from the Republican dominated House of Representatives. By removing the fiscal uncertainty with a pro-business tilt, it is assumed corporate planning will resume and lead to a surge in pent-up corporate spending which would then ultimately prove supportive of higher stock prices – a condition which in-turn is likely to push mortgage interest rates higher as capital moves into riskier asset classes.
Flip that around for an Obama victory. A deeper political divide on taxes and spending between the White House and Congress could drag the country perilously close to falling off of the “fiscal cliff” – a condition likely to support “safe-haven” buying of Treasury debt obligations and agency eligible mortgage-backed securities – a process that tends to be supportive of steady to perhaps fractionally lower mortgage interest rates.
Use the Short-Term Risk Matrix and the Long-Term Trend Meter above as a blueprint as you lay out your interest rate risk management strategies this week. Far better to be proactive – rather than reactive.
