Mortgage rates are in a holding pattern until after the election Daily Journal

It seems clear now that it does not matter what economic data comes out between now and next week.

Mortgage rates will not improve by any significant margin this week or even after the election.

Unfortunate for those who need to stabilize and/or close their price this week. And last month for that matter.

Lenders are essentially in a holding pattern and continue to price defensively until at least next Wednesday. Probably longer…

Simply put, election results matter more than data right now.

The largest presidential election in years

We all know that next week’s presidential election is going to be a big one. One of the biggest in years. Aside from being highly controversial, there is a lot at stake regarding the direction of the economy.

So far, markets have been counting on a Trump win, at least defensively.

Without getting into politics here (I have no interest in doing so), a win for either candidate does not appear to be helping 10-year yields at the moment.

The best way to track mortgage rates is through the 10-year bond yield, which works well historically because 30-year fixed mortgages often last about a decade as well.

Although they are offered for 30 years, most pay off early due to refinancing or home sales.

Recently, the yield on 10-year bonds has been rising higher and higher, with most market experts pointing to increased government spending as the culprit.

In short, with the expectation of more government spending, any way you slice it, yields rose. Investors want compensation when they buy government debt (bonds).

But one could argue that this was already known several months ago, when yields were closer to 3.50% versus about 4.35% today. What does it give?

Bond yields are higher because the worst of everything is being baked off

Without getting into the technicalities here, bond yields have basically been pricing in the worst of the worst lately. Just look at the chart above from CNBC.

Whether it’s the outcome of the election, potential government spending, or economic data, it’s all being priced in the worst way possible.

That’s why we’ve seen the 10-year yield rise by almost a full percentage point since the Fed cut interest rates in mid-September.

Despite this morning’s very weak jobs report, the 10-year yield rose another 6 basis points.

Yes, it was a report affected by hurricanes and labor strikes, but on a normal first Friday of the month, you would likely see lower yields and improved mortgage rates given the massive weakness.

That won’t happen this week and isn’t a real surprise at this point. As mentioned, there are bigger things on investors’ minds.

The good news is that we should have clarity next week once the votes are counted and hopefully we have a clear winner.

Of course, if things continue, that could be bad for bond yields as well. Basically, anything and everything is hurting bond yields, and therefore mortgage rates, right now.

(How do presidential elections affect mortgage rates?)

Mortgage rates could see a comfortable rise

Now the good news. Since there has been no good news at all for about a month and a half, there could be a significant rise in the mortgage rate.

As with any other trend, once it runs out of steam, a reversal could be in store. Think of a sell-off in the stock market. Or short press.

After a few bad days or weeks in the market, you’ll often see stocks rise. The same could be true for bonds, which have been under intense pressure for more than a month now.

Eventually, they are oversold and there is an opportunity to buy.

If bond prices do rise once this election is decided, simply because some clarity is finally getting, bond yields could fall quickly.

Defensive trading could ease and mortgage rates may finally get some relief as well.

That’s never a guarantee, but since everything has essentially worked against mortgage rates for over a month, they could score a big win as soon as next week.

Of course, economic data will remain important. But most importantly, It will matter again After they were basically kicked out during election season.

Remember, weak economic data is generally good for mortgage rates, so if unemployment continues to rise, and inflation continues to fall, rates should fall over time as well.

Read on: Mortgage lenders take their time lowering interest rates

(Photo: Paul Sableman)