WASHINGTON – What effect might the shutdown of the federal government have on mortgage rates? Most analysts don’t expect any direct effects, but some suggest it could alter sentiment among buyers, which could play a role.
Chris Whalen, chairman of Whalen Global Advisors LLC and an investment banker focusing on mortgage finance and financial services, told Yahoo Finance he isn’t expecting “anything drastic.”
“The 10-year gets pulled down for a lot of reasons, some because of the friction like government shutdowns,” Whalen told Yahoo Finance in an email. He noted mortgage rates have been falling since July, but have recently eased higher. “But that was all done by aggressive lenders, not markets,” he said.
Whalen told Yahoo Finance he isn’t expecting anything drastic to happen in the mortgage markets during the shutdown, but does believe the Federal Housing Administration will stop processing certain new loans, which will create delays in financing — but that’s about it.
Slightly Different View
Taking a slightly different view, Dr. Selma Hepp, chief economist with Cotality, told Yahoo Finance she believes a government shutdown can shape investor sentiment and limit access to key economic data, with the result being potentially lower mortgage rates.
“When shutdowns occur, investors typically flock to Treasury securities, which pushes their yields down and can result in slightly lower mortgage rates — usually a drop of about 0.125 to 0.25 percentage points,” Hepp told Yahoo Finance via email. “For instance, if the 30-year fixed mortgage rate is sitting at 6.375%, it might fall to around 6.125% during the shutdown.”
Hepp acknowledged that other market factors can alter those expectations, including the interruption of vital economic reports the Federal Reserve counts on to set monetary policy, such as gauges of employment and inflation.
Job Market Concerns
Mike Fratantoni, chief economist for the Mortgage Bankers Association, told Yahoo Finance via email that ADP’s report indicating 32,000 job losses in September amplifies concerns about a weakening job market.
“And this is particularly the case as we are unlikely to get BLS job market numbers, given the shutdown, so the ADP number increases in importance,” Fratantoni told Yahoo Finance.
