A Historical Perspective for Real Estate Investors
Presidential elections bring significant changes to the political and economic landscape, often influencing key financial indicators such as mortgage and loan rates. For real estate investors utilizing hard money or fix-and-flip loans, understanding these trends can be instrumental in planning future investments. Using historical data, including trends from Freddie Mac, let’s examine what typically happens to 30-year fixed mortgage rates the year after an election and how it may impact investors in 2025.
Note: This data does not encompass changes in hard money loans, however, can be used as a signal for changes in financing rates.
Historical Trends in Loan Rates After Elections
Freddie Mac data shows that mortgage rates tend to fluctuate significantly depending on the economic policies of the newly elected administration. Historically, the year following a presidential election often brings:
- Economic Stabilization or Volatility:
- If the economy stabilizes post-election, rates tend to remain steady or decrease, as seen in 2017 when the average 30-year fixed rate dropped slightly to 4.14% after the 2016 election.
- However, when policies introduce uncertainty or inflation concerns, rates tend to rise, like in 2001, when rates increased to 7.01% following the 2000 election.
- Federal Reserve Policy Adjustments:
The Federal Reserve’s monetary policy heavily influences loan rates. Post-election periods with fiscal stimulus or inflationary pressures may prompt the Fed to raise rates, affecting borrowing costs for real estate investors. - Market Confidence and Lending Conditions:
Market confidence in the administration’s economic strategies often impacts the housing market. Investors may see changes in borrowing terms, especially in short-term hard money loans, due to adjusted risk assessments by lenders.
Key Insights from 2024 Rates and Historical Comparisons
- 2024 Election Year Rates: The 30-year fixed mortgage rate in 2024 averaged 6.90%, slightly lower than 2023’s 7.00%, suggesting stabilization in anticipation of the election.
- Historical Election Year Trends: Similar patterns occurred in 2016 (3.79%) and 2020 (3.38%), where rates either remained stable or decreased slightly during the election year.
What Does This Mean for 2025?
Based on historical trends, rates in 2025 may either stabilize or decline slightly if the new administration’s policies promote economic growth and reduce inflation. However, if inflationary pressures persist or significant fiscal changes occur, rates could edge upward, impacting borrowing costs for real estate investors.
Impact on Hard Money Lending and Fix-and-Flip Loans
For investors relying on hard money or fix-and-flip financing, understanding these dynamics is critical:
- Rising Rates: A rise in rates may increase the cost of borrowing, reducing profit margins on fix-and-flip projects. Investors should plan for higher holding costs in such scenarios.
- Stable or Declining Rates: Lower rates can create opportunities for refinancing hard money loans or increasing overall ROI on projects due to reduced borrowing costs.
- Borrower Preparedness: Working with flexible lenders, such as Community Capital, can help mitigate risk and adapt to market changes.
Looking Ahead to 2025
While no two elections yield the same economic outcomes, historical trends provide valuable insights. Investors should closely monitor Federal Reserve actions and economic policies under the new administration. Preparing for various scenarios by locking in favorable rates early or leveraging partnerships with adaptable lenders will be key to thriving in a post-election economy.
At Community Capital, we specialize in hard money and fix-and-flip loans designed to help real estate investors succeed, even in fluctuating markets. Contact us today to learn how we can help you navigate potential interest rate changes in 2025 and beyond.
