Falling mortgage rates in recent weeks have inspired homeowners to refinance their homes. Some analysts suggest that the trend could continue amid cooling inflation and the expectation that the Federal Reserve will slash borrowing costs sooner rather than later.
Mortgage broker and CEO of Maryland-based First Trust Financial Marty Harlee told personal finance platform GoBankingRates that there could be a jump in refinancing after the November election.
"If former President Donald Trump should win the upcoming election, we would see another massive refinance boom along with a record number of home sales," Harlee was quoted as saying. "I predict that Trump would definitely recommend to the Federal Reserve to lower the interest rates."
Newsweek contacted Harlee by phone for comment on Thursday.
Trump has suggested that as president he would seek to have some say in how the Fed sets interest rates. "I feel the president should have at least [a] say in there," the former president who is seeking re-election told reporters in August. "I feel that strongly."
Some housing economists point out that the Fed is an independent entity.
"They have independent appointees that don't necessarily take direction from the president," Ralph McLaughlin, senior economist at Realtor.com, told Newsweek.
Mortgage rates have been elevated partly due to the central bank's hiking of borrowing costs beginning in March 2022 to their current two-decade high of 5.25 to 5.5 percent as policymakers worked to cool soaring inflation. Recent weeks have suggested that inflation may be cooling to the Fed's 2 percent target, a development that analysts believe will spur a reduction in rates starting as soon as next month.
"Whether or not we see a boom in refinancing is going to have more to do with where mortgage rates go," McLaughlin said.
He cautioned, however, against expectations of a refinancing boom. He suggested that with mortgage rates currently at about 6.5 percent, they would need to decline even further to spur a rush of refinancing activity.
"We may not see a significant boom in refinance activity until rates continue to go down a bit further maybe into, you know, the 5 to 5 and a half percent range," he said.
Recent data has suggested that refinancing has picked up amid a drop in rates. McLaughlin pointed out that this was from a low base. He went to suggest that most homeowners are sitting on mortgages of under 5 percent. Those who own home loans that are higher than that may be refinancing to help take advantage of the equity they have built as houses gained value over the last few years, for example.
"It may be because households have been putting off taking equity out of their home until rates come down and now the rates are starting to come down, they may be finally trying to tap into some of that equity that they have in their house," he said.
With the Fed expected to cut rates over the coming months, mortgage borrowing costs may decline further.
"Folks that are eager to refinance...I would recommend that they be patient," McLaughlin said. "All signs are that inflation is starting to really come down towards that said target, which means the Fed, although they may not get aggressive in lowering rates, they may be fairly consistent. And so some patience now, if you plan on staying in the home for a long time, some patience now could really pay off."
He went on to add that the outlook for mortgage rates is to come down to 6.3 percent by the end of the year.
"To be very direct and clear, we are conservative when it comes to our estimates," McLaughlin told Newsweek. "But if you actually look at the window of possibilities certainly within the realm of possibility is mortgage rates going lower than that."
With recent signs that the economy was slowing, it could mean that the Fed may cut rates of up to 1 percentage point by the end of the year, which may contribute to mortgage rate declining even more than Realtor.com's estimate.
"I think that the odds of mortgage rates going down is much higher than them going up," McLaughlin said.
Lenders expect that with borrowing costs falling, the mortgage market could see increased activity.
"We expect that that purchase market will continue to gain momentum as mortgage rates continue to fall," Bob Broeksmit, Mortgage Bankers Association's CEO, said in a statement.
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