Home mortgage rates aren't likely to rise or fall by more than one-half percentage point between now and December, according to a sampling of top housing economists last week.
But watch out for November. The economists say that the election results could presage significant changes in the mortgage money marketplace in 1985.
Strong Reagan or Mondale victories at the polls, for example, may have an important impact on interest rates, but not necessarily in the direction that conventional wisdom or the candidates' supporters suggest.
Timothy Howard, chief economist of the nation's largest mortgage lender, the Federal National Mortgage Association (Fannie Mae), forecasts that a Reagan landslide in November could be bad for home loan rates next year.
Without any softening of the president's current position against raising federal tax revenues to cut the federal deficit,, a big re-election victory "will send a message to the market that massive deficits are politically acceptable" and that they're not likely to be corrected soon, Howard said. That message will keep rates in the long-term capital market high -- at or even beyond their current levels.
A Mondale victory, on the other hand,, well might have a surprising contrary effect on money market managers, Howard said. Despite Wall Street's political leanings in Reagan's favor, the initial response to Mondale's election would be lower, not higher, interest rates, Howard believes.
Mondale's unequivocal promise to increase tax revenues and restrain spending "raises the likelihood of a significant deficit-reduction effort" early in his administration, Howard said.
"No matter how much they might like Reagan on other issues,", the capital markets would take the short-term view that higher taxes under Mondale could mean lower federal borrowing in 1985 and 1986, and slower economic growth. That would create profit-taking opportunities on today's high-yielding securities in the bond market and push mortgage rates lower.
How much lower and for how long? Howard won't tie himself down on either score. But he believes that a comprehensive federal deficit reduction package of tax increases and spending cuts -- passed See HARNEY, E37, Col. 1 by Congress and signed into law by the president -- is worth at least 2 to 3 percentage points off today's long-term mortgage rates.
Mondale's tax stand -- if accompanied later in the campaign by a credible program of spending restraints -- could produce part of that rate drop in the first half of 1985, according to Howard.
Fannie Mae's chief economist is widely respected for his record of accurate interest rate forecasts and technical analyses, but his "Mondale effect" scenario leaves some of his mortgage-market colleagues shaking their heads.
James Christian, chief economist of the U.S. League of Savings Institutions, thinks that the financial markets' reaction to the prospect of a Mondale presidency "would inevitably be negative."
"What they'd assume from a Mondale victory is that we're going to have at least two years of brouhaha and political stalemate in Congress about raising taxes, with no certainty whatsoever that the deficit would ever be cut," Christian said.
More worrisome for housing than domestic investors' reactions to a Mondale victory, in Christian's view, would be the response of foreign investors.
Christian sees the vast inflows of foreign capital -- currently running at the unprecedented rate of $80 billion a year -- as the key to understanding the American economy's exceptional growth in 1984, despite high interest rates.
Those record inflows are providing essential fuel for the mortgage market, home building, the stock market and the bond market, he says. The economy's real growth in gross national product of 7.3 to 7.4 percent this year -- the highest rate since 1951 -- rests heavily on infusions of foreigners' dollars. That's a fragile, fundamentally unhealthy situation, in Christian's view, "But it's what we've got right now, and it's allowing us to expand personal income and production at the rates we are."
Scare those investors' dollars away and he believes that "we're going to be smack into a recession" by mid-1985, one that penalizes credit-dependent home buyers, builders and sellers especially hard.
"Rightly or wrongly, foreign investors associate low inflation, high growth and high returns on their capital with the economic policies of Ronald Reagan," Christian said. "Take him out of office, and many of them could take their money and run."
So who's economic scenario do you believe? Should you worry about the foreigners, the bond market, federal tax cuts, GNP growth, or Reagan or Mondale in calculating your mortgage money strategies for the coming year? Or none of the above?
Probably your safest bet is to keep your eye on all of the above. And unless you truly believe that the next Congress will get its act together and control the billowing federal deficit, don't hold your breath for sharply lower rates, no matter who's inaugurated next January.