Lock Today or Bet on the Fed?

As always with this kind of pseudo-crystal-ball post, take what I say here with a healthy dose of counsel from your own mortgage professional.  You do have one of those, right?  If so, call him and talk this over.  If not, Zillow is a great place to find one.

Tonight we find out one big piece of the rate puzzle, in figuring out which of the two major parties in US politics is going to control the US Congress for the next two years.  The Republicans are almost surely going to take over the House of Representatives, but if they do not take the Senate as well – and the smart money right now says close, but no cigar – that will probably mean gridlock until the next presidential election, in 2012.  Gridlock may sound like a bad thing, but for markets, it’s great.  Markets love certainty.  They love consistency.  If the Congress disappeared altogether, that would suit them fine.  This would be as close to that as we could get.

Your first indication will be at 7pm EDT, when the first polls close.  If the GOP defeats John Spratt in South Carolina’s 5th District, be prepared for a gigantic Republican win in the House.  For the Senate, watch West Virginia’s race, polls closing at 7:30pm EDT.  If Joe Manchin hangs on to win there, the Democrats are likely to hang on to the Senate.  If he loses, we may have GOP majorities in BOTH houses.

What does that mean?  Out on a limb here, but the Republican wave appears built on small-government, almost libertarian types.  If that wave comes in big, it will likely mean a reduction in regulation of the mortgage markets over the next couple of years, and that would mean lower closing costs on mortgage transactions.  However, that same budgetary hawkishness is also likely to be focused on encouraging the Fed rate to rise, and if that happens, mortgage rates are going to go with it.  So a mixed bag, there.

The second piece of the rate puzzle is the bigger one, and that comes at 2:15 EDT on Wednesday, when the Fed announces its plans for the next round of quantitative easing, or QEII, described in detail here.  This one is easy to call.  If the Fed says that it’s going to buy $500 billion of treasuries starting right away, you can float all day long.  Rates will fall, and probably as much as .25%.  If, however, the Fed says it’s going to buy in the region of $300 billion over some months, you better have your lock in place.  The markets will hate that news and we’ll most likely see a large correction higher in rates.  If the Fed is in between, the markets will still move, but nobody can say how.  There is a lot of news coming out tomorrow, and absent a surprise by the Fed, that news could do its own moving of our mortgage rates.

Either way, if you’re looking at refinancing or closing on a purchase, CALL YOUR MORTGAGE PROFESSIONAL NOW.  Get ready.  Forewarned is forearmed.  Luck favors the prepared.  All that stuff.