Can elections influence mortgage interest rates? Do interest rates go down in an election year?
Interest rates play an important role in how much buyers can afford to pay for a home.
What's in this article?
While rates generally are influenced by broader economic factors, elections can add a layer of uncertainty that can trickle down to interest rates and the housing market.
In this article, we’ll explore how elections have historically reshaped the housing market and how homebuyers should approach election years.
How do elections impact the housing market?
While presidential elections don’t directly have an effect on mortgage interest rates, they can indirectly impact the larger economic factors influencing the housing market and interest rates.
Presidential elections can also make homebuyers and investors feel uncertain about the economy, significantly shaping their decisions during this time.
For example, investors may act more conservatively as they wait to see what potential policy changes and government spending shifts may occur under a new presidency.
Homebuyers and sellers may also wait to purchase or sell a home as they consider whether rates will shift or home prices will fluctuate.
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Historical examples of interest rates during election years
Look at some recent presidential elections and the presumable effect they had on interest rates.
1980 election: Ronald Reagan and Jimmy Carter
The 1980 U.S. presidential election occurred during severe economic distress, with mortgage rates in the double digits.
The Federal Reserve was taking action to curb high inflation, so rates had soared up to 16%.
Uncertainty surrounding the approaching election may have led to fluctuations in mortgage rates.
Still, due to economic conditions, the high rates took a few years to curb, even after Reagan was elected.
2008 election: Barack Obama and John McCain
The 2008 election occurred amid one of the worst financial crises in U.S. history, the Great Recession.
The Federal Reserve had cut interest rates to stimulate the economy, so mortgage interest rates were relatively low during this period and remained low post-election as the economy recovered.
2016 election: Donald Trump and Hillary Clinton
A polarized political climate and uncertainty about the election outcome contributed to significant market volatility in 2016.
Mortgage rates were relatively steady leading up to the election but jumped after Trump’s victory in anticipation of his proposed policies.
2020 election: Joe Biden and Donald Trump
The 2020 election was unique due to the COVID-19 pandemic’s economic impact.
In an effort to support the economy, the Federal Reserve cut interest rates to near-zero levels, driving mortgage rates below 3% for the first time in recent history.
Despite the political tensions surrounding the election, mortgage rates remained low through Biden’s win due to the Fed’s policies.
Factors that influence mortgage rates during elections
Historical examples provide clues about the impact of elections on mortgage interest rates, but measuring that impact is not an exact science.
What we can take from the examples is that while presidential elections do seem to stimulate rates in some way, the changes also correlate with other economic factors at play.
Additionally, the results are difficult to predict and may not always be large enough between pre- and post-election to be considered noteworthy.
That said, let’s take a look at the factors that exert influence on mortgage rates during elections.
Federal Reserve policy
The Federal Reserve closely monitors economic conditions and takes the necessary steps to maintain stability and prevent disruptions, including during election years.
While the Federal Reserve does not directly influence mortgage interest rates, it indirectly affects them through its adjustments to the federal funds rate, which is an important factor in the cost of borrowing throughout the economy.
The historical examples above reveal something of the effect of Fed adjustments on mortgage rates during election years.
Political parties
Each political party has a distinct platform regarding fiscal policy. That policy can bear upon mortgage rates.
Historical trends show that mortgage rates tend to fluctuate during a transition which involves a change in political parties.
Inflation expectations
Election outcomes can strongly shape market expectations regarding future inflation.
For example, when a winning candidate promotes policies that stimulate economic growth and which may create inflationary pressure, people anticipate higher mortgage rates.
Conversely, policies that take a more conservative economic approach may lead to stable or reduced mortgage rates.
Post-election trends
Once the outcome of an election is determined, mortgage rates often stabilize as investors and homebuyers gain confidence (or acceptance) regarding the incoming policies.
While mortgage rates may not return to pre-election levels, they should settle at new levels based on the anticipated economic growth, inflation and monetary policy under the new administration.
What homebuyers should consider during election years
What should you do with this information if you’re a homebuyer or homeowner? Should it affect your decision to purchase or refinance during an election year?
Let’s take a look at the unique considerations for homeowners and homebuyers during election years.
When to lock in your rate
Will the upcoming presidential election cause interest rates to rise or fall?
For many, locking in an interest rate before an election can provide peace of mind.
Election years can cause rate volatility and uncertainty. By locking in a rate now, you may avoid a sudden, unexpected rate swing.
Compass Mortgage allows borrowers to lock in a great rate with our distinctive Get Committed® program, which provides a fully underwritten loan commitment.
Whether you should purchase or refinance
If you’re ready to buy a home or refinance your current mortgage, you don’t need to wait for an uncertain outcome.
It can be difficult to predict what will happen after an election and whether you will even get the desired outcome based on the winning party’s policies.
Instead, give yourself control of the process now and move forward with your purchase or refinance. You can always refinance at a lower rate in the future.
Market strategies for buyers
Buyers should keep a close eye on mortgage rates during an election year.
Get in touch with a Compass Mortgage loan officer to help you determine the best time to lock in your rate.
With a loan commitment from Compass Mortgage, you can be ready to act when you find the home of your dreams.
Lock in your rate with Compass Mortgage
Compass Mortgage offers our Get Committed® program to put borrowers in the best possible position to win the home they want.
A loan commitment essentially has the power of a cash offer, showing the seller you’re fully approved financially and your deal isn’t likely to fall through.