As one of the most contentious presidential elections in recent history approaches its summation, many Americans are curious as to how the election of Hillary Clinton or Donald Trump will impact interest rates and the US housing markets.
I honestly feel that the uncertainty or perceptions generated by the election have a greater effect on buyers than the final outcome itself will. History teaches us that markets react to the anxiety or confidence created by significant events. They then correct themselves after the dust settles. The question you may have is, how long will the fallout of this election impact interest rates? And when will markets settle down?
Let me start by saying that overall, since the previous election in 2012, home prices have improved by about 25% and unemployment has dropped to less than 4.00%. In addition, consumer spending has recovered significantly and interest rates have remained at historic lows. New housing numbers out this week confirm that prices are going up and sellers are getting their price on homes. And although rates are creeping back up into the 4.00% range, the state of the current housing market is positive. Especially, here in the Northeast Florida market.
Politics and ideology aside, all the pundits seem to agree that we will experience two opposing market reactions after November 8th. The prospect of an inexperienced and inflammatory politician becoming president can have adverse impacts on an economy. As of today, foreign investors are pulling money out of the US Stock market as they worry about an another “Brexit” type of experience taking place in the United States (Pound Sterling remains weak due to the fallout of that decision). More importantly, those of us in lending and the real estate industry will be watching how this election impacts the bond market?
Interest rates are primarily tied to the “ten-year treasury” yield. The “ten-year” is used as a proxy for most important financial matters in the USA. So when investors are confident, the bond yield drops as investors look toward riskier more profitable investments. When confidence is low, the price of the “ten-year” increases as there is more of a demand for a safer place to park investor’s money. So it’s not very hard to predict which candidate’s election would cause the higher jump in bond rates. Investors would prefer a peaceful and uncontentious exchange of leadership over a tumultuous and sudden change in direction. Policy positions of the two candidates vary widely and that can be unsettling to investors.
Ultimately though, once all the election theater is over, Federal Reserve policy, economic growth and inflation are likely to remain the largest driver of bond returns as they always are. Elections typically have a short-term effect on markets (as well as stock markets) and therefore, I only see a speedbump in the road after the markets digest the outcome of the election. As to how big a bump, we will have to wait and see. Home buyers, in my opinion, should continue to focus on more traditional factors in the economy. In the case of Real Estate, location, location, location!
About the Author: Mark P. Sherman is a Mortgage Loan Originator at HomeBridge Financial Services, Inc., (904) 509-8272