Good morning everyone!
As we talked about in yesterday’s update, we are all sitting on the edge of our seats her at CCM waiting to see which party is able to secure the two open Senate seats. This election will not only determine the potential of our next presidents first term but the direction of both the stock and bond market. While nobody can predict with 100% accuracy what will happen if either party takes the majority, let’s look at the situation on a fundamental level.
The mortgage market could benefit more if the Democrats take the Senate. The thought behind this is that the biggest immediate change in the economy will be Biden’s proposed tax hikes. While these hikes are only for those making over $400k, this income bracket makes up a large portion of the different investment markets. Taking money from the market and giving it to the government will drive stocks down and increase bond returns – resulting in lower mortgage rates. However, this school of thought was proven to be flawed by the Obama administration who saw great GDP growth while hiking taxes. Fundamentals would say that we would see the opposite with a majority Republican Senate who would do anything to stifle any tax hike proposed by President Elect Biden. This would keep money in the market, continue to push the market up, adding upward pressure to mortgage interest rates. We will dive into this topic deeper once we know which party takes the majority, but remember that while these are fundamental thoughts, anything can happen.
Yesterday we put out a strong lock alert as the Mortgage Backed Security market had climbed for the previous week up to a tested ceiling of resistance. Hopefully you were able to because the market is down 19 bps and counting this morning. We had seen Mortgage Backed Securities bounce lower off that ceiling multiple times so we assumed we would see it again. With a ton of room to fall and the great short term gain we have seen over the part 2 weeks, we are still holding a strong locking bias.