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7% mortgage rates are a warning about who will win the election, economist says
Moody’s Analytics Chief Economist Mark Zandi says the real-estate market is seeing big shifts in interest rates, as the 30-year mortgage rate fell closer to 6% before surging to 7% in a few weeks. - MarketWatch/Getty Images
Aarthi Swaminathan
5 min read
That was Mark Zandi, chief economist at Moody’s Analytics MCO, in a post on the social-media platform X on Tuesday morning.
Zandi, whom Republicans have dubbed “Democrats’ favorite economist,” said that the average 30-year mortgage rate hitting 7% on Monday indicated that investors are expecting Republican nominee Donald Trump to win the Nov. 5 presidential election — and is a sign that they believe a second Trump presidency would lead to higher inflation and more government borrowing.
Higher inflation, in particular, could push the Federal Reserve to keep interest rates higher for longer as the central bank seeks to contain the inflation rate at or near its 2% annual target.
Zandi has often been cited by the Biden administration in economic forecasts. He has provided advice to Democratic candidate Kamala Harris on her housing-policy proposals, and has written publicly about his view that Harris’s policies would help solve the country’s affordable-housing crisis.
The 30-year mortgage rate had plunged in advance of the Fed’s rate cut in September, prompting a flurry of refinancing activity as homeowners sought out lower rates.
As of Oct. 29, the 30-year rate averaged at 7.08%, according to Mortgage News Daily, which surveys lenders on a daily basis.
Mortgage rates are going up because the U.S. economy is stronger than anticipated, Zandi explained in his post, and investors are reevaluating how quickly the Fed will cut its policy rate further in the coming months. Rates are also rising as markets try to gauge Trump’s potential impact on the U.S. economy, Zandi said.
“Equally important is investors’ rising expectation that former President Trump will win re-election (look at betting markets),” Zandi wrote. “Investors are taking Trump at his word and believe if he wins it will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full-employment economy, all of which means higher inflation and more government borrowing.”
He concluded that the recent jump in mortgage rates “is a clear indication [of] what investors believe a Trump victory would mean for the economy and the nation’s fiscal outlook.”
In response to a MarketWatch query about how rates would move under a Trump presidency, Zandi said that there are “too many moving parts” to answer the question.
Nevertheless, “investors’ increasing anticipation of a Trump victory has already added an estimated nearly half [of] a percentage point to fixed mortgage rates,” he added.
Trump has said he would lower mortgage rates to 3% if elected, which isn’t something presidents have the power to do.
Right-leaning think tank responds to Zandi’s tweet
Part of the blame for the sharp rise in mortgage rates lies with the Fed, contended Ed Pinto, a senior fellow at the American Enterprise Institute, a conservative think tank.
“They got ahead of themselves on a number of [economic] reports,” Pinto told MarketWatch.
The central bank cut its benchmark interest rate by 50 basis points, which was larger than expected, on Sept. 18. Its next meeting is on Nov. 7.
Pinto said that the Fed cut interest rates on the basis that the U.S. economy was slowing. But the economy has been stronger than anticipated, as evidenced by various economic indicators including consumer confidence.
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Pinto also disagreed that a Trump presidency would necessarily lead to a bigger government deficit.
A large federal budget deficit is considered to be harmful to the U.S. economy’s health, according to the Bipartisan Policy Center, which has a monthly deficit tracker.
“President Trump said he’s going to reduce the deficit in varying ways, and so has Vice President Harris. But I don’t know [if] the market believes them,” Pinto said.
And “for mortgage rates to drop nearly 100 basis points, [there needs to be] a credible plan to reduce the deficit,” he added.
The 30-year mortgage rate tends to follow the direction of the 10-year Treasury yield BX:TMUBMUSD10Y. And the 10-year has been trending upwards, bringing mortgage rates up in tandem.
Home buyers pushed out of the market by high housing costs
With the 30-year mortgage rate back at 7%, home buyers with a strict budget would have to spend more on interest, which erodes their buying power.
With a 7% rate, a home buyer looking to purchase a property could afford a $442,500 home, according to an analysis by real-estate brokerage Redfin. With a 6.11% rate back in mid-September, they could have bought a slightly more expensive $475,750 property.
The high cost to enter the housing market has spooked many home buyers, particularly those looking to purchase a home for the first time.
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Sales of previously owned homes fell to the lowest level in 14 years in September due to home buyers pulling back, the National Association of Realtors said. The median price of a resale home was up 2.9% from a year previously, to $409,000.
Even though “there are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy,” said Lawrence Yun, the NAR’s chief economist, “perhaps some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election.”
