What Does a ‘Blue Wave’ Mean for Mortgage Rates?

Mortgage rates fell again this week, extending a gradual slide that began well before Election Day.

The average rate on a 30-year fixed-rate mortgage fell 13 basis points to 7.05% APR in the week ending Nov. 5, according to rates provided to NerdWallet by Zillow. (A basis point is one one-hundredth of a percentage point.) We calculate our weekly average using daily APRs recorded over the past five business days.

Homebuyers’ budgets are feeling the pinch from high mortgage rates, steep home prices and a shortage of listings. On the campaign trail, candidates from both parties promised to make homeownership more affordable. But solving that problem is like untangling 20 years’ worth of Christmas lights from your attic. Yank on one strand, and three more tighten.

“Jumpstarting the housing market relies on a calmer geopolitical environment and bond market in the short run and more housing supply plus a more dynamic labor market in the long run,” Jake Krimmel, senior economist for Realtor.com, said in an email.

A shift in political power won’t erase those challenges overnight. Here’s what’s driving mortgage rates right now — and where a Democratic Congress might have some pull.

How that affects mortgage rates: The relief of one less uncertainty is giving rates some breathing room.

Election results have cleared up one big unknown for investors. With Democrats controlling Congress and Republicans holding the White House, markets are bracing for the reality that any major spending bills could face roadblocks.

Political gridlock isn’t always popular, but weirdly, investors sometimes welcome it. When a divided government limits new spending, the government may need to borrow less than expected — which could turn down the heat on mortgage rates.

But there’s a catch. That same gridlock could make it harder to pass laws to help bring down housing costs.

How that affects mortgage rates: Heavy borrowing from the government and tech companies adds upward pressure to the bond market, where mortgage rates take their cues.

When the government spends more than it collects in taxes, it borrows the difference by selling Treasury bonds. When there’s lots of debt for sale, investors may demand higher returns, called yields. Mortgage rates tend to follow the yield on the 10-year Treasury note.

The new Congress still faces a mountain of government debt. What they choose to do about it can ripple through the economy to affect your monthly mortgage payment.

“Sound fiscal policy, rather than deficit-financed spending and standoffs over budgets and the debt limit, can help keep rates in check,” Andy Winkler, managing director for housing and infrastructure policy at the Bipartisan Policy Center, said in an email.

Meanwhile, Big Tech companies are borrowing a boatload of money to build AI data centers. To get the cash, they issue corporate bonds, giving investors another place to put their money. More bonds flooding the market can push Treasury yields higher, taking mortgage rates along for the ride.

But how long can the AI building boom last? Voters across party lines pushed back against data centers in the midterms. Even if lawmakers pump the brakes on new construction, a slowdown in tech spending doesn’t guarantee cheaper mortgages.

How that affects mortgage rates: Wartime disruptions to global oil supplies can fuel inflation, pushing borrowing costs higher.

The unpopular war in Iran likely added to the voter frustration that helped fuel Democrats’ midterm victories. Higher energy costs can hit household budgets in multiple ways: at the pump, through pricier goods that need to be shipped, and through higher interest rates on loans (including mortgages) as inflation heats up.

“A resolution would likely improve oil supply, helping to ease price pressures and potentially providing relief for mortgage rates,” Krimmel said.

A Democratic Congress could push for a different approach to ending the war, but it can’t make Iran agree to a deal.

Meanwhile, stubborn inflation from the Iran war has raised the prospect of another Federal Reserve rate hike at its Dec. 8-9 meeting. Futures traders now put the odds of a quarter-point increase at more than 80%, according to CME FedWatch. The Fed doesn’t set mortgage rates directly, but investors anticipate its decisions — so mortgage rates often move before the Fed does.

If buying a home makes sense for your budget now, there’s little reason to wait just because Congress changed hands. Buyers can sometimes score lower prices in winter, when sellers are more willing to negotiate. But with today’s mortgage rates hovering above 7%, higher borrowing costs can eat into those savings, so it’s important to compare mortgage lenders to get the best rate.

For longer-term hope, look to the bipartisan 21st Century ROAD to Housing Act, which became law this summer. This legislation shows lawmakers can, in fact, work together to make meaningful progress on housing affordability.

“Even with divided government, lawmakers and the administration can build on that common ground to further boost housing production, preserve existing affordable homes, and help families struggling with high housing and utility costs,” Winkler said.