Fairview's Glen Weinberg expects a split Congress, gridlock, and rates stuck near 7% to 8%
In less than two weeks, voters will go to the polls for the midterm elections, as all 435 members of the House of Representatives and a third of the Senate will be up for grabs.
Many in the industry hope market volatility will settle down after the elections, regardless of the outcome. Freddie Mac’s 30-year fixed-rate mortgage fell eight basis points today to 7.32%, a bit of good news going into the election.
However, one veteran lender isn’t sure the upcoming election is going to lead to market improvement. Control of Congress often shifts in a midterm year, but he expects a divided government to accomplish little.
That matters because the forces he sees holding up rates, federal borrowing and an aging population, don't change with an election.
Glen Weinberg (pictured top), COO and partner at Fairview Commercial Lending, said brokers who plan around a turnaround after the midterms could be waiting a long time.
"I think probably 40 to 50% of the market is in that, 'Close your eyes and rates are going to be better after the election, this is going to happen, and all these external forces are actually going to solve the problem,'" Weinberg told Mortgage Professional America.
Why the election won't help
Weinberg expects voters to split control in Washington, since the party in the White House tends to lose ground. He doesn't expect a divided Congress to act on the deficit or on the programs that drive it.
"I'd be surprised if the Republicans held on to everything," he said. "You get this in midterms. If you just look historically. So let's say the Democrats take one or both, the House or the Senate, and I actually think having this mixed government, nothing's going to happen because they can't agree on, like, the color blue, like whether it's light blue or dark blue."
That would leave federal borrowing on its current path. Weinberg sees that as a key pressure on long-term rates.
"There's going to be no big changes for any of the big issues causing our deficit, whether it's Medicare, Medicaid, defense spending or Social Security," he said. "None of that's going to change. On top of that, if they're going to get anything done, they're going to have to compromise, and both parties now are the party of spending. So they'll both say, ‘Okay, you spend this, we'll spend this.’ My gut is you're going to see a rise in rates because of continued deficit spending."
In France, he said, bond investors have pushed the government toward spending cuts. He expects the same pressure to build in the U.S.
"This is what the bond market is going to tell us, all of us as Americans, what we can spend and not spend on," he said. "And we're seeing it in 10-year Treasuries."
Planning for 7% to 8%
The Mortgage Bankers Association (MBA) also expects 30-year rates to stay above 7% through next year. Weinberg puts the range at 7% to 8%.
"Rates, this is historically where we've been at in that 7 to 8% range," he said. "Maybe it's 6 to 8%, but it's not unreasonable. It's not like 10, 12%, but this is kind of the new normal."
While Weinberg has seen these rates before during his 30-year career, it’s the combination of the rate environment with elevated home prices that makes the situation different.
"Historically, they're about where they were," Weinberg said. "My first mortgage was at like 7.5%. Real estate prices are a lot higher, so it makes it pretty hard to stomach a 7.5% mortgage. If you're paying $150,000 for a house at 7.5%, it might not be that bad. If you're paying $450,000 or $500,000, median home price, now it stinks a little more."
The gap traces back to the low-rate years after the start of the pandemic, Weinberg said. He blames Washington for actions then that have consequences now.
"You can blame our federal government for this because they are the ones that lowered rates during COVID and everything to make these 2% and 3% rates to pump money into the economy and buy mortgage bonds," he said.
Two paths look likely, he said, a shock or a long stretch of little change. He doesn't see a rosy outcome.
"We're just stuck for like 10, 15, 20 years," he said. "And so great, prices aren't wholesale declining, but because of inflation, you end up in the stagflation scenario where everything's just kind of stagnating. There's no real good solution unless someone wants to just go and rip the Band-Aid off and see what happens. And in our political climate, nobody's got the political will."
A long stretch of market difficulties could reshape what the industry looks like, including real estate agents and others whose income depends on closings, Weinberg said.
"This industry is going to have to right-size for the new volumes," he said.
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