[INSERT JM ELECT HOUSING CHART 1 HERE]
Mortgage rates probably won’t be significantly impacted
With uncertainty around federal economic policy, mortgage rates are what is actually impacting the housing market right now, so a House flip probably won’t change their main drivers. Freddie Mac’s 30-year average was 7.24 percent last week, up to about 7.4 percent in mid-October. NAR’s pending home sales index hit a record low in September. The restraint of US home sales comes from higher inflation tied to the Iran war’s effect on energy prices, deficits, and the massive amount of AI borrowing.
If there is a democratic majority in the House
I expect the next two years to be bogged down in oversight and investigations. On housing, a Democratic House could hold hearings and investigations into White House pressure on the Fed and its January order directing Fannie Mae and Freddie Mac to buy $200 billion in mortgage-backed securities. A Democratic House would also bring closer scrutiny to any plan to release Fannie Mae and Freddie Mac from conservatorship. The administration could still try to do it without Congress, but it would face hearings, subpoenas, and investigations of the terms, with taxpayer losses and higher mortgage rates as the obvious lines of attack. I suspect there will be renewed scrutiny of the Compass-Anywhere merger, which avoided a deeper DOJ investigation after Compass appealed to the Deputy AG’s office, which voided the expected one-year review and prompted an Anywhere shareholder class action. Also, a review of tariff policy and the Iran War. Whatever topics the new Congress addresses, the new power-dynamic check on the executive branch may reassure bond markets about Fed independence, helping keep interest rate growth in check after markets expect a December Fed hike and possibly another one in January.
If there is a Democratic majority in the Senate
Democrats need a net gain of four seats to take control from the Republicans. The Senate probably matters more for housing than the House, mainly because it confirms nominees. Every Fed governor needs Senate confirmation; a Democratic Senate is expected to reject nominees who won’t let the Fed set its own course, which could ease worries about Fed independence. Upcoming openings include Powell’s board seat, whose term ends in January 2028, and Lisa Cook’s seat if Trump succeeds in forcing her out. A Fed that cuts rates on command would likely push long-term rates up, stoking inflation. Bond investors would probably welcome a Senate that blocks governors who “cut rates on command.”
Democrats would take over the Senate Banking Committee and its subpoena power. Banking Democrats have already asked for a hearing with FHFA Director Bill Pulte over a cut by about two-thirds, from $55 million to $20 million, to funding for his agency’s inspector general (IG). The IG oversees FHFA itself, including Pulte’s decisions. He can’t legally block an IG investigation, but budget cuts can shrink how much oversight it can actually do. FHFA is in the executive branch, and the Housing and Economic Recovery Act of 2008 created it as “an independent agency” to regulate Fannie Mae and Freddie Mac and, if needed, act as their conservator. It also oversees the Federal Home Loan Banks, which act as a “bank to banks.” They make loans to lenders rather than to homebuyers, which keeps money flowing into mortgage lending. FHFA is still labeled independent, but it works much like any other executive agency under the president’s control. The Supreme Court has already stripped most financial regulators of their political independence, but the Fed’s situation remains unresolved.” Collins v. Yellen (2021) already made the FHFA director removable at will, so these agencies now effectively report to the White House.
Treasury Secretary Bessent expects an overhaul of Fannie and Freddie over the next two years, also signaling no near-term move, because keeping mortgage spreads narrow comes first. The overhaul terrifies me given the potential impact on the massive bond market. I believe consolidating Fannie and Freddie into a new entity out of conservatorship could raise mortgage rates by 0.5 percent across the board by widening the spreads, which represents the perceived risk premium. Senate Democrats have raised concerns that such an overhaul could disrupt an already stressed housing market. A Democratic majority in the Senate would likely slow the overhaul of the GSEs down or attach significant conditions. Again, anything that reduces drama in the housing market will encourage more potential homebuyers to dip their toes in.
A divided government will reduce drama (uncertainty)
After the midterms, the president effectively becomes a lame duck but will still serve to offset the House’s and even the Senate’s newfound political power, while significantly reducing the president’s power. A divided government is expected to lower deficit spending and deficit-financed fiscal policy, which has pushed 2026 spending to rise about 6 percent, widening the deficit to $2 trillion despite DOGE. This could help ease inflation and the need for more rate hikes. While lower 10-year yields would be the real path to lower mortgage rates, we should expect little cooperation on any fiscal fixes after the election between the executive and legislative branches of government. The gridlock should mean far less drama coming out of Washington, which is one reason more of the home-buying public is sitting on the sidelines right now.
Final thoughts
Whoever wins, the housing market will still follow inflation and the bond market, not the election calendar. A divided government won’t lower mortgage rates on its own, but it can check moves that unsettle bond investors and push rates higher: pressure on the Fed, rushed changes to Fannie and Freddie, and runaway deficit spending. Washington offers no quick fix for housing affordability. Still, a little less drama could give sidelined buyers enough confidence to start looking again.
The Actual Final Thought – Just a reminder.
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