The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.
If history is a guide, this is an unlikely scenario.
Election Day doesn’t figure to alter markets any more in 2008 than it did after the four previous presidential elections.
If anything, post-Election Day market reaction has been muted:
- 1992 : Dow closes down 0.9 percent the day after Election Day
- 1996 : Dow closes up 1.6 percent the day after Election Day
- 2000 : Dow closes down 0.4 percent the day after Election Day
- 2004 : Dow closes up 1.0 percent the day after Election Day
But just because the stock market has a history of idling on the day after the election doesn’t mean that mortgage rates will rest easy this week. The likely outcome is the opposite, actually.
If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise.
Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety. This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.
Of course, it’s as difficult to predict post-Election market conditions as it is to predict the election itself but one thing is for certain — rates may rise and fall before the week is out, but credit guidelines will remain extra-tight. Getting approved for a mortgage won’t be any easier — no matter which party wins the Presidential Election.