The New York Times reports that consumers and housing industry experts are surprised by the sudden jump in mortgage rates – about 50 basis points (1/2%) since the election (see chart). This could be random noise that means nothing, or a herald of something to come.
If the latter, why should anyone be surprised?
As noted here and here, Donald Trump’s rhetoric and his stated policies would lead to huge increases in the budget deficit, which has to be financed by selling bonds. Since foreigners have provided a huge part of the demand for U.S. financial assets, the shrinking of America’s role in the world (drawing away from TPP, NATO, etc.) could draw away financial assets as well. (The other side would be the liberalizing of financial regulations, which could make financial markets in the U.S. more attractive in the short run, but riskier in the long run.)
Becoming more protectionist will likely raise prices, even if the deficit were not exploding. The combination of greater protectionism, rising deficits, a huge fiscal stimulus given current low unemployment, and perhaps less attractive financial markets for foreigners, leads to one conclusion … coming inflation ... and hence the noticeable spike in 30-year fixed mortgage rates.
You'd be a sap to lend money for that length without covering yourself for the potential increase in inflation.
It is impossible to know what mortgage rates would be had Hillary won, but on one issue I think we can be fairly sure—budget deficit projections would be much lower, holding all else constant.
On the other hand, the Wall Street Journal discounts the worry about the uptick in inflation, and many indicators remain flat. Also, my own ability to predict inflation, growth, and other key indicators is as bad or worse than most others -- so for gosh-sake please discount my predictions.
But elections have consequences, don’t they? And often the consequences are opposite of what is intended. A populist who proclaims to help the lower-middle class might end up hurting that very group, through rising mortgage rates. This would not be a surprise to anyone in Venezuela.