How does the impeachment process in Washington impact mortgage rates?
Question of the week: How does the impeachment process in Washington impact mortgage rates?
Answer: Directly there should be no impact. Indirectly, as economists like to say, that depends…
On September 24, 2019 Speaker of the House Nancy Pelosi announced that six committees of the House of Representatives would begin formal impeachment inquiries of President Trump.
Long time readers of the WR&MU know that disruption, uncertainty and crisis that harm the economy effect investors, who react by “flight to safety;” in other words they will sell riskier investments, meaning stocks, and purchase relatively safe investments, meaning bonds and other fixed rate investments. An alternative to what are considered the safest investment available, bonds issued by the United States Treasury, are Mortgage Backed Securities (MBS), in other words residential mortgages.
As investors sell stocks prices in the stock market will drop. As investors purchase bonds and other fixed rate investments like MBS those prices will rise. For interest bearing investments like mortgages and bonds as the prices rise the rates drop.
Back to our question. If investors consider the impeachment process, and actual impeachment, a disruption that would impact the economy negatively they would flee to safety, selling stocks and buying bonds and mortgages.
For the past two and a half months investors have ignored what is happening in the hearings in various committee rooms in the Capitol. Since mid-September the Dow Jones has gone up about 1000 points, 3.7%, and mortgage rates are about the same this Friday as they were on September 27th—actually the conforming high-balance rate is a tick lower.
Politics impact investors decisions only as much as they feel they will disrupt or benefit the economy. Should President Trump be impeached what will be the significant impacts to the economy as a result in any change in policies that effect businesses and markets? That is the question investors answer as they place their bets in the equity and fixed rate markets. From their reaction so far it appears they believe that if Trump is impeached the policies and actions of the new Pence Administration in regards to business, trade, taxes and markets will not be much different.
While individual investors may have personal political bias when making donations and punching ballots, investors as a group however are concerned only with the politics that impact the bottom line. It appears that the charts on the business pages are paying no concern to the news on the front pages.
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Big news for those seeking mortgages. The Federal Housing Finance Agency announced the new loan limits for conforming (Fannie Mae and Freddie Mac) for 2020. The new limits are $510,400 for conforming loans and $765,600 for high-balance loans in eligible areas (Los Angeles and Orange Counties are eligible). The loan limits are based on median home prices nationwide, the fairly significant increases from 2019 reflect a strong increase in prices across the country.
Investors are not the only ones. It appears that businesses are not concerned about a potential change in administrations in Washington. The Labor Department today announced that the economy added 266,000 jobs in November, well beyond the expectation of 180,000. Part of the increase was due to 50,000 striking workers at GM went back to work, absent those numbers the new jobs created still exceeded expectations. The unemployment rate dipped back down to its 50 year low in November, to 3.5%, and the average hourly wage rose to annualized rate of 3.1%–well above the rate of inflation which is below 2%. Overall the news is mortgage rate unfriendly as more workers means more wages means more consumer spending means more economic growth. As seen above, if bad news pushes stocks and rates down, good news pushes stocks and rates up.
Rates for Friday December 6, 2019: The conforming rate has been the same every Friday since in increased from October 4th to October 11th. That is eight weeks in a row, the longest streak since February 9th to April 13th 2018 when the streak was nine weeks. The high-balance rate drifted up slightly from last Friday.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 3.625% Flat
30 year high-balance conforming 3.875% Up 0.125%
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
It’s here. December filling our weekends with parades, parties, get togethers and music. This is the last month of the decade, a lot different than the first month of the decade when housing markets were still dropping in prices and our topics of discussion were foreclosures and short sales.
I hope you have a great month enjoying the opportunity to see family and friends and create wonderful memories with both.
Have a great week,
Dennis
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog
