If you’re thinking about buying or refinancing a home and wondering how President Obama’s second term in office will affect future mortgage rates, here’s the short answer: It probably won’t.
Although mortgage industry experts speculated that four more years of an Obama administration would mean lower mortgage rates, whereas former Gov. Mitt Romney’s election would mean higher ones, their interest rate theories aren’t much more than guesswork, simply because of the limited influence that presidents have on mortgage rates.
“The guiding force on mortgage interest rates is the Federal Reserve,” said Greg McBride, senior financial analyst for Bankrate.com. “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. ...
“If we go into a recession, interest rates will move lower,” McBride said. “If the economy continues to strengthen, interest rates continue to trend a little higher.”
That’s the general rule of thumb and we’ve seen it play out since 2007, when the economy began to crash. Right now, the ties between the federal government and interest rates center largely on how the Federal Reserve reacts to economic indicators such as jobs reports, the Consumer Price Index, home sales, gross domestic product and consumer confidence surveys.
In order to help the limping housing market recover, the Federal Reserve has been buying up mortgage bonds and mortgage-backed securities. The Fed announced in September that it would continue buying about $40 billion in mortgage-backed securities each month, that it would invest another $45 billion of dividends and receipts into Treasury securities until the job market improves substantially, and that it would to keep the Fed fund rates low until mid-2015.
The Fed’s goal is to keep mortgage rates as low as possible, with the hope that it spurs more lending in the housing market and fosters faster economic growth. Though the plan has been controversial, with critics equating it to the Fed printing money and therefore ramping up inflation, it has been a driving factor in keeping mortgage rates not just low but at all-time historic low levels.
By buying up mortgage-backed securities and Treasury securities, the Federal Reserve decreases supply, which increases prices and decreases the overall yield for investors. In theory, then, the Fed’s move has the added benefit of pushing investors out of the bond and securities markets and into the stock market, which also helps the stock market and in theory, the larger economy.
While elections and presidents do play some role in mortgage interest rates, it’s really the Fed that has the largest influence. The president’s impact on mortgage rates basically boils down to his economic policy and his ability to nominate members of the Board of Governors of the Federal Reserve System, and name the chairman and vice chairman, who are then confirmed by the Senate.
The Fed’s headline maker, Ben Bernanke, still has 12 years on the board, but his four-year term as chairman ends in 2014 and he’ll need Obama’s support if he wants another term.