How the Recent Election is Impacting Mortgage Rates
Elections don’t just change the political landscape—they also create waves in financial markets. Following this year’s election, you might have heard about rising Treasury yields and wondered how that affects mortgage rates. Interestingly, despite shifts in market conditions, the average 30-year fixed mortgage rate has remained steady, hovering around 6.75% for the past month, according to the Federal Reserve Economic Data (FRED). Let’s break down the underlying trends and what they mean for you.
1. Treasury Yields vs. Mortgage Rates
Mortgage rates are heavily influenced by the 10-year Treasury yield, a key benchmark for long-term borrowing costs. Since the election, the yield has increased from 4.2910% on November 5th to 4.41% as of November 20th. This rise signals growing investor expectations of economic growth and inflation, but why hasn’t this translated into a noticeable spike in mortgage rates?
Here’s why:
Market Momentum and Rate Stability: Lenders price mortgage rates based on a mix of current Treasury yields and future expectations. While yields have risen, rates remain steady as lenders wait for clearer economic signals.
Lag Between Yields and Rates: Mortgage rates don’t adjust instantly with Treasury yield changes. Lenders also consider demand for mortgages, competition, and broader economic conditions.
2. Why Treasury Yields Are Rising
The increase in Treasury yields is tied to several post-election factors:
Inflation Expectations: Policies like tax cuts and infrastructure spending are expected to boost economic activity, but they may also drive inflation. Investors demand higher bond yields to account for the anticipated decrease in purchasing power over time.
Increased Government Borrowing: Financing these policies could mean issuing more government debt. Higher supply of bonds can push yields higher as the market adjusts to the added volume.
Stock Market Rally: Following the election, the stock market has climbed as investors anticipate pro-growth policies. This shift diverts money from bonds to stocks, reducing bond demand, which drives yields higher.
3. How This Affects You
Although mortgage rates have stayed steady for now, they remain sensitive to market conditions. Here’s how the current environment could impact your plans:
Buying Power: While rates haven’t increased significantly, any future rise would reduce affordability. For example, a $400,000 loan at 6.75% costs $2,594 per month (principal and interest). At 7%, that jumps to $2,661—a difference of $67 monthly or $804 annually.
Refinancing Decisions: For homeowners with rates below 6.75%, the refinancing window may remain closed unless you’re tapping into equity or consolidating debt.
Market Uncertainty: The current stability in mortgage rates provides an opportunity to lock in favorable terms before further economic data or policy changes push them higher.
4. Strategies to Navigate the Market
With mortgage rates holding steady but Treasury yields rising, now is the time to evaluate your options:
Lock Your Rate Early: If you’re under contract to buy a home, consider locking in your rate. Current rates are still favorable by historical standards.
Explore Creative Solutions: Adjustable-rate mortgages (ARMs) and buydown programs can help reduce upfront costs, especially if you expect rates to stabilize or fall in the future.
Work with a Broker: A mortgage broker can provide tailored solutions and access to a variety of lenders, ensuring you get the best deal possible.
5. A Broader Perspective
While Treasury yields are climbing, mortgage rates holding steady reflects a balancing act in the market. The anticipated policies driving yields higher—like tax cuts and infrastructure spending—may also lead to job creation and wage growth, which can offset the challenges of rising rates for many borrowers.
Final Thoughts
The relationship between Treasury yields and mortgage rates is complex, and understanding it can help you make more informed decisions about your home financing. If you’re thinking about buying, refinancing, or have questions about how these trends impact your financial plans, let’s connect. I’m here to guide you through this dynamic market.