What Mortgage Interest Rates May Be Like under President Bush’s Second Term in Office

Under President Bush’s second go-round as president, experts concur that with regard to real estate and housing issues…there is one certainty, higher mortgage rates. Outside of those anticipated increases, everything else is much vaguer in scope.

Presently, new homebuyers are entitled to take a tax deduction on the mortgage interest portion of their loan agreement. However, under Bush’s second term, this practice could soon be called into question. If able to float along, it might be accompanied by a reduction in mortgage insurance costs.

Plus, such government housing entities as Fannie Mae and Freddie Mac would most likely then be obligated to provide low income property owners with additional price incentives.

Experts foresee President Bush once again backing the zero-down financing program. Plus, there is a chance that he may also rally for additional tax credits and breaks for first time property purchasers.

On the home builder front, their expected response is to lobby for reduced state and local construction and zoning regulations.

Yet, the most crucial question that remains is whether mortgage rates will rise or fall? Presently, a 30-year-fixed mortgage stands at 5.35 percent and a 15-year fixed at 4.78 percent. So the big question is if and when the rates fluctuate, by how much and how frequently will variances occur?

In theory, a president has ultimate control over financial markets. Yet, in truth, the housing and mortgage interest rates matter is one over which Bush has very little control because he can only cause an indirect impact through policies that affect taxation and expenditure issues.

Yet, unanimous in their outlook, both economists and bankers alike concur that mortgage rates have no place to go but up from the all-time low levels they have been at for the past couple of years. As the economy improves, unemployment rates go down, and the Federal Reserve Board continues to inflate short-term rates, mortgage rates, in response, are destined to increase.

The one gray area, though, is the impact the Federal Budget deficit will have upon interest rates. This then is the unknown or X factor. While the deficit is on track to hit a new low of more than $420 billion, and deficits commonly result in an increase in interest rates, it remains to be seen under the Bush Administration as to whether such a cause and effect scenario will come to pass.

Looking ahead, many economists tend to have unfavorable expectations with respect to how mortgage rates will fare in the coming four years. From their vantage point, they believe the continuation of national deficits only serves to further aggravate the pressure put upon on mortgage rates to increase. Yet, do not despair anytime soon, as tax incentives and new initiatives often accompany higher mortgage rates.

However, as the only way that has been suggested to maintain low mortgage interest rates is to reduce the federal budget deficit, it is prudent that one not get overly optimistic about a return to rock bottom rates anytime soon.