The Factors Needed for Rates to Drop

Last week we put together a Pre-Election game plan for home buyers. Over the weekend HousingWire’s Logan Mohtashami posted an article titled “Can Mortgage Rates Get Under 7% for the Holidays?” Logan says the 30-year fixed, which averaged 7.37% last week, could get back under 7% by the holidays. He gives four conditions for that to happen. Our read hasn’t changed since last week’s pre-election game plan: if things break the right way around the November 3 midterms, rates could plausibly drop a quarter to three-eighths of a point in a short window. That’s a real move. It isn’t a point and a half.

Oil is the main driver. Nearly all of the inflation pressure holding rates up right now traces back to the Iran conflict and oil prices. Most other inflation inputs have been fairly flat. We also part ways with HousingWire on one of the four conditions: we don’t think tariffs are the rate risk they’re often made out to be.

Hear the full conversation

On Beyond the Rate, Charlie and Will Braden go through the HousingWire article point by point, explain where they disagree with it, and talk about why they still think buyers should get under contract before the midterms. Listen to the episode →

The pre-election game plan, in one paragraph

If you were already planning to buy, don’t rush the decision itself. Just think about the timing. Get under contract in the next week or so and set a roughly 30-day close, so closing lands after the November 3 midterms. That locks in today’s buying conditions, when sellers are negotiating and you can still get a home for 5–10% under list price or win a property that’s drawing other offers. It also leaves your financing open to a lower rate if something big happens just before or after the election. A good price now and a better rate a few weeks later would be a double win. We’d call it a meaningful edge, not a game-changer.

Why the midterms are the hinge;

President Trump has said there would be no Iran deal until after the midterms. That puts a date on the most important variable in the rate outlook. A 30-day close that runs past November 3 is built to be open when that date arrives.

HousingWire’s four conditions for sub-7% rates, and how we rank them

1. The Iran conflict ends and oil prices fall

We agree with HousingWire that this one matters most. The inflation pressure keeping rates elevated has been mostly oil. Take oil out, and most of the other parts of the economy that feed into inflation have been fairly flat. A credible deal would push oil futures down, ease inflation expectations, and give bonds room to rally. Mortgage rates follow bonds.

2. Softness in the AI build-out

For the last few years, a handful of tech, chip and AI companies have done most of the work of carrying the stock market, and at times they’ve traded at multiples far above normal. These companies are also putting huge amounts of money back into data centers and infrastructure, and the valuations depend on earnings that are still years away. A pullback like the one AI stocks had last week sends investors toward safer assets, including Treasuries and mortgage-backed securities. More demand for those bonds means lower yields and lower mortgage rates.

3. The trade war can’t get worse. This is where we disagree.

HousingWire’s view is that no new or higher tariffs would be good for rates. That’s fair as far as it goes, but we’d put tariffs last on this list. A tariff is a one-time price increase, not ongoing inflation. Say a 10% tariff pushes a $10 product to $11. Next month it’s still $11. The price level jumps once. It doesn’t keep climbing month after month the way real inflation does.

2025 already gave us a test. Tariffs dominated market talk for most of that year, with headlines about 100% tariffs on China and disputes with Canada. Rates still drifted lower through 2025, and inflation readings kept falling. The real problem was all the back-and-forth on policy, which created uncertainty. The tariffs themselves didn’t drive inflation.

4. Softer economic and labor data

Mohtashami has always put a lot of weight on labor data, and it’s a fair emphasis. Weak jobs numbers tend to bring lower yields. His caveat is the important part, though. Most people no longer expect big job gains, so a jobs report has to come in below those already-low expectations to move rates. October’s numbers are due the week after the election. If they come in soft right as an Iran resolution lands, the two would add up.

We have a bigger complaint about jobs data. Nobody can say what a “neutral” month looks like anymore, whether that’s 50,000 jobs or 150,000. Recent reports have bounced from gains around 30,000 to 120,000 and back to 50,000. Investors react the moment a headline number comes out, the revisions often move it a lot later, and borrowers live with the rate swings in between. Some people were told to “marry the house, date the rate,” or expected rates to fall well under 6%, and then rates turned around on data that later got revised. They’re still waiting on a refinance that hasn’t become possible.

Our ranking of what matters most:

Oil and Iran come first by a wide margin. Labor data is second, then the AI pullback. The trade war is a distant fourth, if it matters at all.

What the numbers did: the last midterm, November 2022

We looked at what rates did around the last midterm election, on November 8, 2022. Rates dropped hard right afterward. But the cause wasn’t the election. On November 10, two days later, a cooler-than-expected inflation report came out, and that’s what set off the move. The takeaway for 2026 is that a quick quarter-point drop is entirely possible when the inflation news turns. The election date matters this year because the Iran deal is tied to it.

Week of	What happened	30-yr fixed average
Nov 3, 2022	Week before the midterms	6.95%
Nov 10, 2022	Midterms Nov 8; survey taken before the Nov 10 inflation report	7.08%
Nov 17, 2022	First full week after a cooler-than-expected inflation report	6.61%, down 0.47 in one week
Nov 23, 2022	Follow-through	6.58%
Dec 1, 2022	Follow-through	6.49%
Dec 8, 2022	Follow-through	6.33%, down 0.75 from the Nov 10 peak

Source: Freddie Mac Primary Mortgage Market Survey, weekly 30-year fixed averages. Freddie Mac changed its survey methodology on November 17, 2022, so weeks before and after that date aren’t perfectly comparable. Figures are national averages and will differ from an individual quote.

What we are watching next

• Iran headlines and oil futures heading into and just after November 3. This is the biggest swing factor.
• The October jobs report, due in the first days after the election. It would need to come in below already-low expectations to help.
• AI and tech earnings. More weakness would push money into bonds.
• Inflation and Mortgage spreads. HousingWire puts the gap between mortgage rates and the 10-year Treasury at 2.21%, up from 2.12% the week before. The historical normal is 1.60–1.80%. If spreads tighten, rates can come down even without a bond rally. But inflation numbers will determine if mortgage rates get pulled closer to the 10-year.

What this means if you are buying or refinancing

Buying: If you’re already actively looking, there’s a good case for getting under contract in the next week or two with a close set after November 3. Don’t buy a house just to chase this setup. The aim is to lock in today’s price and keep the chance at a better rate. Talk with us before you sign about when to lock and what your options are if rates fall before closing.

Refinancing: A drop of a quarter to three-eighths of a point would be welcome, but it won’t make a refinance worth it for most people on its own. If you bought at a higher rate expecting to refinance later, send us your current rate and balance. We’ll tell you how far rates would need to fall for the numbers to work, so you’ll know when it’s time to act.