Georgia held its runoff election on Tuesday, and Democrats appear to have won control of the Senate. Now, housing experts are shifting their 2021 forecasts, theorizing that the refinance wave could be cut short.
As of press time, the race was called for Democrat Raphael Warnock with a win likely for Democrat Jon Ossoff. Both men ran against incumbent Republican counterparts. This brings the Senate totals to 50 Senators on each side, with Vice President-elect Kamala Harris set to become the tie breaker.
The outcome is in contrast to the expected divided Congress that would have resulted from a Republican win on Tuesday. Now, one expert says this could be a game-changer for the refinance wave in 2021.
“MBA anticipates refinance originations to be strong in 2021, but slowing from 2020 to around $1.19 trillion,” Mortgage Bankers Association Chief Economist Mike Fratantoni said. “The prospects of increased spending and deficits will likely put upward pressure on mortgage rates as the year progresses, which in turn could lead to the current refinance wave ending a little sooner.”
This reflects the forecast Fratantoni wrote for HousingWire earlier this year, where he based it on a divided Congress, but warned that a Democratic Senate could cut the refinance wave short.
“Regardless of which party takes over the Senate, the expectation is that there will eventually be another stimulus package to help households and businesses,” he wrote at the time. “Prior to the election, the possibility of a ‘Blue Wave,’ with Democrat control of the government, raised expectations that there would be much higher levels of government spending, larger budget deficits and higher interest rates. That would certainly have cut off the refinance wave more quickly.”
Riding the news of a Democrat win in Georgia, the Dow Jones Industrial Average soared to a new high Wednesday, hitting nearly 31,000 as of press time. The 10-year Treasury yield also increased on Wednesday, rising past 1% for the first time since March. However, experts say to that rise could be temporary.
“We continue to forecast that the 10-year U.S. Treasury will end this year and next at 1%, even though it has crept above that level as the Democrats look set to take control of Congress,” Capital Economics stated in its economic report.
This is because the company said the U.S. is unlikely to see substantially more fiscal stimulus due to Democrats’ slim lead in both houses of Congress. In fact, Capital Economics argues that the win in Georgia is unlikely to bring about any meaningful economic changes.
“With Democrats picking up both Georgia Senate seats in yesterday’s run-off elections, President-elect Joe Biden will have a much easier time confirming his picks for cabinet positions and the chances of a limited fiscal stimulus passing further down the line are a bit higher,” Capital Economics Senior U.S. Economist Michael Pearce said. “But Biden’s major legislative priorities, including a large Green New Deal-style infrastructure package partly funded by higher taxes on high-income individuals and corporations are still unlikely to become a reality, so we are not minded to change our (above-consensus) forecasts for 2021 or 2022.”
But other members of the housing industry are hopeful, calling Georgia’s results “historic” and talking about the changes needed as Democrats take control later this month.
“CLPHA congratulates Raphael Warnock on his historic victory and Jon Ossoff’s election to the United States Senate, thus securing a Democratic Senate majority,” said Sunia Zaterman, Council of Large Public Housing Authorities executive director. “The incoming Biden-Harris administration and HUD Secretary-designate Marcia Fudge now have expanded, once-in-a-generation opportunities to improve the lives of low-income Americans who have been especially harmed by the COVID-19 pandemic.
“The first course of action is for Congress to pass a new stimulus relief bill with $50 billion in emergency rental assistance that addresses housing insecurity and homelessness,” Zaterman said. “These historic wins also provide momentum to permanently expand the Housing Choice Voucher program and recapitalize the public housing portfolio, both of which are concrete steps to eradicating poverty and dismantling systemic racism. CLPHA looks forward to working with the Biden-Harris administration and the 117th Congress to make these legislative goals happen.”