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What Biden means for mortgage rates, housing policy, and real estate

Peter Miller
The Mortgage Reports contributor

What should home buyers and homeowners expect from Biden?

When it comes to housing policy, the Biden Administration is focused on affordability and accessability.

So far, Biden has proposed a $15,000 first-time home buyer tax credit, financial help for renters, and a reinvestment in fair housing policy.

Of course, none of these changes are guaranteed. They’ll have to pass through Congress first.

And some experts have speculated that while a Biden win could help bolster homeownership for the middle class, it could also mean higher mortgage rates.

But with COVID still the biggest driver of low rates in today’s market, any and all predictions on this front are far from certain.

Find and lock a low mortgage rate (Dec 1st, 2020)

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What does Biden’s win mean for mortgage interest rates? 

Mortgage rates have pushed lower and lower throughout 2020, making home buying more affordable and creating huge savings for refinancing homeowners.

In general, presidents support low rates. That’s partly because rock-bottom interest rates make home buying — and other consumer lending — more affordable and stimulate the economy. 

But presidents also like low rates because they reduce the massive interest cost represented by the national debt.

In the most recent fiscal year (FY2020 which ended September 30th), interest on the national debt cost taxpayers $522 billion

Presidents don’t set interest rates 

While Biden and Trump disagree on just about everything, no doubt they share some views regarding interest levels.

Presidents, however, do not set mortgage rates or any other interest rates. Neither does the Federal Reserve. 

In fact, the biggest driver of record-low mortgage rates in 2020 has been the coronavirus pandemic. 

Presidents do not set interest rates. If you want to know what will happen to mortgage rates, keep a close eye on the COVID pandemic and the progress of new vaccines.

Massive uncertainty and a recession pushed and kept interest rates down throughout 2020. 

But, as we’ve said for some time, an effective COVID vaccine could turn the tides.

And we did see rates spike earlier this week, when Pfizer announced the success of its vaccine trials so far. 

But we’re still far from having a vaccine available to the general public or life going back to ‘normal.’

As long as the economy remains in recovery mode, we can likely expect mortgage rates to continue in a band near or below 3%.

Find and lock a low mortgage rate (Dec 1st, 2020)

Refinance rates: The Adverse Market Refinance Fee is still looming

In August, a new 0.5 percent fee was announced for homeowners who want to refinance starting in late-2020. The fee would apply to mortgages sold to Fannie Mae and Freddie Mac.

Mortgage rates immediately rose following the news of the Adverse Market Refinance Fee, both for refinancing and purchase mortgages.

Originally set to begin September 1, the start date was pushed back to December 1. But that includes any loans not closed and delivered to Fannie or Freddie before the December 1 start date.

The Adverse Market Refinance Fee is already being applied to new refinance loans, thanks to the time it takes to close a loan and deliver it to Fannie Mae.

The purpose of the new fee, said the government, was to bulk-up Fannie Mae and Freddie Mac with $6 billion in new reserves and protect them against heightened risk due to COVID.

What was not said was that the government had already shifted almost $110 billion from the companies to the Treasury since 2008, money that could have been used for reserves.

In any case, unless the Biden Administration decides to kill the Adverse Market Refinance Fee, it will mean slightly higher rates on conventional refinance loans — and likely home purchase loans as well.

Homeowners refinancing with a government-backed FHA, VA, or USDA loan may not be affected.

Check your refinance rates. Start here (Dec 1st, 2020)

Biden’s $15,000 tax credit for first-time buyers

Biden has promised to pursue a $15,000 tax credit to bring more first-time buyers into the market. This is similar to a 2008 plan used to restart the housing market after the 2006-2008 mortgage meltdown.

The tax credit would directly benefit younger, first-time, and minority home buyers, who have traditionally had a harder time entering into the housing market. 

Unlike the first-time home buyer tax credits of 2008-2010, Biden’s proposed credit would be advanceable — “meaning,” as Biden’s website states, “that homebuyers receive the tax credit when they make the purchase instead of waiting to receive the assistance when they file taxes the following year.” 

The odds of passage for such a credit seem good, because real estate markets in all states would become more active.

And, potential home buyers currently blocked from the market could begin building equity and financial security — which benefits whole commiunities. 

However, the $15,000 first-time home buyer tax credit is not guaranteed. It would need to be passed by Congress, which controls U.S. tax policy. 

Biden’s renters tax credit

Similarly, Biden has raised the idea of a renter’s tax credit that will limit rental and utility costs to 30 percent of an individual’s household income.

The goal is to protect renters from excessive housing costs and leave more room in their budgets for daily necessities and putting away savings. 

This proposal — and the $15,000 tax credit for first-time buyers — would require congressional approval and be part of a larger debate. 

Biden and the Federal Reserve

The Federal Reserve is run by a Board of Governors with seven members. Currently, two seats are vacant — though they may be filled with Trump nominees before year-end. The remaining five seats are held by four Republicans and one Democrat.

During his presidency, Biden will have the chance to fill five Board seats. He will also have the opportunity to name a new Fed chair to replace Jerome Powell.

The result could be a Federal Reserve with a lot more interest in jobs and unemployment and fewer worries about inflation. 

The Fed has been one of the major forces keeping mortgage rates down in 2020, and we can expect that trend to continue in 2021.

While the Federal Reserve doesn’t control mortgage rates, its actions can have a big impact on them.

The Fed’s low-rate policy and buying of mortgage-backed securities during the pandemic has been one of the major forces keeping mortgage rates down.

Based on its current policy stance, we can expect the Fed to keep rates low through at least 2021. And this will likely contribute to low mortgage rates as well.

For now, there’s no reason to believe the Biden Administration would change the Fed’s course on this matter.

Verify your new rate (Dec 1st, 2020)

What will happen to Fannie Mae and Freddie Mac?

In 2008 the government placed Fannie Mae and Freddie Mac under a conservatorship. This is fancy term means the government took over both companies.

Now, 12 years later, the new Administration is faced with the question of what to do with Fannie and Freddie.

The Trump Administration has recommended that Fannie Mae and Freddie Mac should be privatized. Shareholders and the government will debate the matter in this session of the Supreme Court.

However, this seems unlikely for several reasons.

First, because Fannie Mae and Freddie Mac each have enormous assets. They have been cash cows that have sent almost $110 billion to the Treasury since 2008, money that has offset annual deficits. 

Second, there is a real worry the tinkering with Fannie Mae and Freddie Mac would simply result in higher mortgage rates — perhaps a full percentage higher. 

This could deter home buyers and refinancers and slow the record year we’ve seen for U.S. homeownership.

Look for the new Administration to mount a wholesale replacement of the current leadership at the Federal Housing Finance Agency (FHFA).

Also, look for it to withdraw all privatization plans until the matter can be further studied. 

COVID-19 is still a major driver for interest rates

Looming over everything is COVID-19.

At the time of writing this, we have the announcement of great progress with a vaccine. If it’s safe and effective, this will be a major game-changer.

But regardless of how good it will take months to get a large-scale vaccine program in place. Meanwhile, new cases are topping 100,000 per day. New hospitalization and death levels will follow. 

Will the new Administration be able to get widespread support for a quicker solution, the use of masks, social distancing, and hand-washing?

In Taiwan, for example, a low-tech approach to virus control has meant “200 days without any domestically transmitted cases of COVID-19,” according to the Voice of America.

If the U.S. adopts stricter practices under a new Administration, we could potentially see a drop in cases and — eventually — a more wholesale return to ‘normal.’ (Or whatever the new normal is.)

That might be bad news for mortgage rates, but it would be a huge win for Americans and the economy.

In conclusion…

In the end, much of what the new Biden Administration does or does not accomplish will depend on who controls Congress.

The House is firmly in Democratic hands. However, we won’t know until January — after the runoff elections in Georgia — whether the Senate will be controlled by Democrats or Republicans.

In neither case is Senate support for Biden’s policies automatic or assured. By January we will know much more.  

For now, mortgage rates continue to hover near all-time lows.

Despite a small spike after the news of a potential COVID vaccine, rates are still in the 3% range.

That means increased affordability for home buyers. And it means huge savings for refinancers — especially those with good gredit and fair bit of equity.

Since rates rest on the economy and not the presidency, we can likely expect these low mortgage rates to continue until we see a much bigger shift toward post-pandemic recovery.

Verify your new rate (Dec 1st, 2020)