Will Obama’s Second Term Have an Impact on Mortgage Rates?

by Scott Skyles on January 25, 2013

in In The News

While many Americans that are considering the purchase of a new home or refinancing of their current home may be wondering if the President’s second term will have an impact on future mortgage rates, the reality is that it most likely will not.

While the talk around the mortgage industry was that if Obama was in office for four more years there would definitely be lower mortgage rates, and with Romney the rates would be higher, these are actually just theories. The main reason that there will most likely be no impact on the rates is that the truth is, the President does not have that large of an influence when it comes to this particular subject.

Greg McBride, senior financial analyst at Bankrate.com stated, “The guiding force on mortgage interest rates is the Federal Reserve. After two years of nonstop blathering, the talking heads on TV would like you to think the presidential election is all that matters, but it isn’t particularly important when it comes to the economy and interest rates….”

McBride continued on to say, “If we go into a recession, interest rates will move lower. If the economy continues to strengthen, interest rates continue to trend a little higher.”

This is the basic rule that has remained the same since the beginning of the economic crisis. Currently, the connection between the federal government and their influence on interest rates is basically based on the Federal Reserve’s reaction to specific indicating factors in the economy that include home sale numbers, consumer confidence surveys, and lastly, job reports.

The Federal Reserve has been purchasing mortgage bonds and mortgage-backed securities to assist in the recovery of the housing and real estate market, and in September, they announced that the Reserve would continue their efforts by purchasing approximately $40 billion in mortgage-backed securities on a monthly basis. Furthermore, the Fed would invest an additional $45 billion worth of dividends and receipts into Department of Treasury securities. The Federal Reserve stated that they will continue this practice until there is a substantial improvement in the housing market.

The main goal of the Federal Reserve is to keep home mortgage rates as low as possible. By keeping the rates low, this could lead to a rise in home loans, in turn promoting a quicker improvement in the overall economy.

The Federal Reserve minimizes supply by purchasing mortgage-backed and Treasury securities. This in turn increases prices, and lowers the overall yield for real estate investors. In principle, the Federal Reserve’s move has the additional bonus of moving investors out of the bond and securities markets and pushing them into the stock market, which assists the stock market substantially, and in turn, assists the economy as well.

While the President does have a certain role in the overall mortgage and interest rates, in the end, it is actually the Federal Reserve that has the widest influence. The President’s role in the mortgage world greatly depends on his specific economic policy, as well as his capability to nominate specific members of the Board of Governors of the Fed and then naming the chairman as well as the vice chairman. Ben Bernanke is the current chairman and his four year term is set to end in 2014. If he plans on serving another term, he will definitely need the backing of President Obama.

Leave a Comment

Previous post:

Next post: