The recent surge in mortgage rates is a clear indication [of] what investors believe a Trump victory would mean for the economy and the nation’s fiscal outlook.
In a post on the social media site X on Tuesday morning, that was chief economist at Moody’s Analytics MCO -0.35% Mark Zandi.
Republicans have called Zandi “Democrats’ favourite economist.” He said that the fact that the average 30-year mortgage rate hit 7% on Monday showed that investors think Republican nominee Donald Trump will win the election on November 5 and that they think a second Trump presidency would lead to higher inflation and more government borrowing.
If inflation goes up, the Federal Reserve might have to keep interest rates higher for longer. This is because the central bank wants to keep inflation at or near its 2% annual goal.
The Biden government has used Zandi’s work a lot in their economic predictions. He has given Democratic candidate Kamala Harris advice on her housing policy ideas and has written in public that he thinks Harris’s plans would help solve the country’s affordable housing problem.
Before the Fed cut rates in September, the 30-year mortgage rate dropped sharply. This caused a rush of refinancing as people looked for lower rates.
Before the rate cut, the 30-year fell to almost 6%. It quickly went back up, and it has been going up ever since.
Mortgage News Daily, which talks to lenders every day, says that the 30-year rate averaged at 7.08% on October 29.
According to Zandi’s post, mortgage rates are going up because the U.S. economy is better than expected. Investors are also rethinking how quickly the Fed will lower its policy rate in the coming months. As markets try to figure out how Trump might affect the U.S. economy, rates are also going up, Zandi said.
It’s also important that investors are becoming more sure that former President Trump will win re-election (just look at the betting markets),” Zandi wrote. “Investors are taking Trump at his word and believe if he wins it will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full-employment economy, all of which means higher inflation and more government borrowing.”
Related: Would Trump cause prices to rise? An economic expert says that his growth based on supply will make prices go down.
Finally, he said that the recent rise in mortgage rates “is a clear sign of what investors think a Trump victory would mean for the economy and the nation’s fiscal outlook.”
Someone from MarketWatch asked Zandi how rates would change if Trump were president. Zandi said there are “too many moving parts” to answer the question.
Nevertheless, “investors’ increasing anticipation of a Trump victory has already added an estimated nearly half [of] a percentage point to fixed mortgage rates,” he added.
Trump has said he would lower mortgage rates to 3% if elected, which isn’t something presidents have the power to do.
A think tank with a right-wing bent replies to Zandi’s tweet
Advocacy group Ed Pinto said that the Federal Reserve was partly to blame for the sharp rise in borrowing rates. Pinto is a senior fellow at the organisation.
Piño told MarketWatch, “They got ahead of themselves on a number of [economic] reports.”
On September 18, the central bank cut its main interest rate by 50 basis points, which was more than what was predicted. The next meeting is November 7.
Pinto said that the Fed lowered interest rates because the economy in the U.S. was slowing down. But the economy has been better than expected, as shown by consumer optimism and other economic indicators.
Pinto also didn’t agree that a Trump presidency would always mean a bigger debt for the government.
The Bipartisan Policy Centre, which keeps track of the deficit every month, says that a big government budget deficit is bad for the health of the U.S. economy.
“Both President Trump and Vice President Harris have said they will cut the deficit in different ways.” Piño said, “I don’t know if the market believes them.”
He also said, “there needs to be a credible plan to reduce the deficit for mortgage rates to drop nearly 100 basis points.”
The 10-year Treasury yield TMUBMUSD10Y 4.233% points to the way that the 30-year mortgage rate is likely to go. And the 10-year has been going up, which has caused mortgage rates to go up too.
People who wanted to buy a home but couldn’t because of the high prices
The sharp rise in home prices has become a big problem for voters and people who want to buy a home.
With the 30-year mortgage rate back at 7%, people on a tight budget would have to pay more in interest, which makes it less likely that they can buy a home.
An study by real estate broking Redfin found that a buyer who wanted to buy a home could afford a $442,500 home with a 7% rate. In mid-September, when the rate was 6.11%, they could have bought a $475,750 home that was a little more expensive.
A lot of people who want to buy a home are scared off by how expensive it is to get into the market. This is especially true for people who are looking to buy their first home.
The National Association of Realtors said that buyers were holding off, which caused sales of previously owned houses to drop to their lowest level in 14 years in September. It went up 2.9% from a year ago to $409,000, which is the median price of a used house.
Lawrence Yun, the NAR’s chief economist, said, “Perhaps some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election.” This is true even though “there are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy.”
