A woman looks at the Washington Monument at night after Democrats won the Georgia Senate and rates went up in response.


    As soon as it became apparent that the two Democratic Senatorial candidates would win in Georgia, rates started to edge higher.

    As most readers know, mortgage rates tend to correlate to the 10 Year Treasury Bond – although this year that correlation has not been nearly as tight as in years past.

    10 Year yields were over 1.6% in early 2020 but they fell to as low as 0.52% in response to the COVID crisis (weak economic news tends to push rates down, as a reminder).,

    10 Year yields edged back up in the fall, hovering in the 0.9% range.

    But this week, 10 Year yields surged to over 1% for the first time in a year after news of the Democrats’ pending victory surfaced.

    This Yahoo News Column explains why this happened.

    With the Democrats in control of the House, the Senate, and the Presidency, even more spending is likely.

    This is not just b/c the Democrats favor more spending; it is also b/c whenever one party has control of the legislature and the executive branch, there is almost always more spending, since there is less opposition to stop it.

    (So yes, rates might have also edged up if the GOP had taken similar control over the Federal Government.)

    In any case, b/c investors believe there will be more spending, they also believe there will be even more borrowing, and this is putting upward pressure on rates (b/c the Treasury will be forced to offer higher yields to attract buyers in the face of a larger supply of debt).

    This increase in rates may be short-lived, however, as many pundits believe that the Fed will be forced to do everything it can to continue to push rates lower in order to keep asset prices and the economy propped up.

    Many pundits further insist that the U.S. will be forced to push government debt into negative rate territory like we have seen in Europe.


    This may all seem paradoxical b/c the Fed is trying desperately to push rates lower while also creating trillions of dollars of new money – which should create inflation, which will push rates up.

    We are not seeing more consumer price inflation now though b/c money is not turning over in the economy more, meaning the “velocity of money” is very low (consumers are saving more and spending less; businesses are investing less; banks are lending less).

    In addition, technology also continues to push prices lower, which also offsets inflation pressures.

    But, at some point, it seems that this precarious balance of money creation and deflationary pressures will become unbalanced, and inflation will rear its head in some manner.

    When this will happen is the real question, as I see estimates that range from one year to five years.


    Another effect of a Democratic sweep will likely be a stronger regulatory environment via the CFPB and other agencies.

    Nobody knows how this will affect lending per se, but we can expect mortgage lenders to become more conservative and we do not expect satisfying mortgage conditions to become any easier.


    The Democrats also seem to be more in favor of stimulus programs too, such as direct housing grants and/or the increased availability of down payment assistance programs.


    As a reminder this blog is never intended to be political in any way, and today’s blog is no exception.

    There is so much going on in today’s world with trade wars, currency wars, the COVID crisis, massive debt levels, enormous government deficits, massive stimulus, political unrest, and central bank interventionism that nobody (especially me) has any idea of how this will all shake out.

    This again just reminds me of my 2017 blog (that I cite repeatedly) about the Portuguese biscuit maker whose only concern is selling more biscuits, without ever worrying about broader geo-political concerns over which he has no control.

    If there was ever a time to just make biscuits, it is now. 😊

    Jay Voorhees
    Founder/Broker | JVM Lending
    (855) 855-4491 | DRE# 1197176, NMLS# 310167

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