Everything that happens before an election is about the election.

This week saw little in the way of real economic reporting that would influence mortgage rates. The looming national U.S. election in less than two weeks has been the driver of mortgage rates. We need to remember that the “market” isn’t an artificial entity like a computer. It is real people making decisions based on what they think is going to occur or not occur. In this extremely emotionally-charged election, emotions are driving the market regardless of the economic reports. It is important during times like this to protect yourself and clients against wild swings in rates that can be based on no information at all. We last saw this during the uncertainty of the COVID pandemic.

Regardless of political leanings and actual facts, the market has definite feelings about what a Harris administration would do to the future of inflation and the economy versus a Trump administration. It appears there are inflationary concerns about the tariffs that would be imposed by a Trump administration. On the other hand, it seems that spending under a Harris administration could also be inflationary, but the market doesn’t seem to think that would cause inflation to increase as much as it could under Trump. Because of this, when polling data and early voting data comes up showing a miniscule lead by Trump, the inflation fears win out driving mortgage rates higher. Remember, inflation is the ultimate killer of low rates. When the dust settles and we have a new president-elect, the markets will adjust and begin to focus more on the technical and economic reports. 

As I have repeatedly stated here, the general economic situation is good for continued declines in rates over the next 12to 24 months, especially with the Federal Reserve’s (the Fed’s) continued rate cuts.  Rates never go up or down in a straight line and this is one of those times where we are seeing them go higher again. Right now, both Mortgage Backed Securities (MBSs) and US Treasuries have broken away from their 200-daily moving average. This isn’t good news for lower rates, but it can be corrected once the focus returns to the economics. The Fed’s Beige Book was released and shows concerns for continued economic worsening. Also, several of the “Blue Chip” companies around the world, like Starbucks, Hilton, Volvo, Heineken, etc., show weaker results. Bad news is good news for rates and continued rate cuts.

Looking Ahead:

Next week is a very important Jobs and Inflation week. We normally don’t see a jobs and inflation report in the same week. Not only is it the last large set of economic reports prior to the election, but it is also the last reporting before the Fed meeting on Nov. 7. 

• Tuesday: Case Shiller Home Price Index, FHFA Home Price Index (the Govt. entity that manages Fannie Mae and Freddie Mac), Job Openings and Labor Turnovers (JOLTS)
• Wednesday: ADP Employment Report, GDP (Q3 1st reading), Pending Home Sales
• Thursday: Personal Consumption Expenditures (PCE – The Fed’s favorite inflation report), Initial Jobless Claims
• Friday: Bureau of Labor Statistics (BLS) Jobs report for October