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How Do Politics Affect Interest Rates?

Where are mortgage interest rates headed in 2021, and how do politics affect rates?

Historically, who is elected President does not change interest rates; however, investors are influenced by major historic events, such as political unrest, war, and a pandemic.

An easy-to-understand rule is this:
GOOD economic news = higher interest rates
BAD economic news = lower interest rates

Also: The perception and expectation of investors = what’s good and bad.

Earlier last week and this week, when president-elect Joe Biden was declared the winner and when the Senate and House of Representatives gained Democratic seats to match the party of the incoming president, that was perceived as good economic news, because unity means work can get done. Interest rates took a sudden spike upward. The suddenness and severity of the increase was a bit of an over-reaction and rates inched downward on Thursday.

This morning, Friday 15th, the stock market took a hit, which is bad economic news, and rates went down, but only very slightly. It looks like rates are on the way to recovering from the sudden spike — but probably not 100 percent.

Another rule to know: Rates go up faster than they come down.

The vaccine rolling out is perceived as good economic news, because when more people can get back to work, that helps the national economy.

Where are Mortgage Rates Headed in 2021?

The expectation is that interest rates will remain low, but not as low as they were at the end of 2020. The bottom is behind us. By spring, we expect rates to be higher, but still good. How much higher? Perhaps an increase of .25% higher.

That said, no one knows for sure what will happen. No one predicted the pandemic and further lowering of mortgage rates in 2020. The expectation was for rates to gradually increase, but instead they decreased.

My personal expectation and prayer is for 2021 to be a better year (because the pandemic will lessen), for small business to open again, for people to get closer back to their normal lives, and for more Americans to realize the dream of homeownership.

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