If mortgage rates go down, that means interest rates in general will go down. That means either the Federal Reserve has mission accomplished almost by getting inflation down and/or we show signs of a recession. What do you see in your personal lives that suggest either is in the works?
Keep in mind that the Fed uses Fed Funds rate to address the short end of the yield curve. This would be things like savings rates, auto loan rates, HELOCs, and credit card interest rates. However, this would not directly affect things like 20-yr and 30-yr mortgage rates. Right now we are in an inverted yield curve situation, which means short-term rates are higher than long-term rates. This has historically been an accurate predictor of an upcoming recession. Once the yield curve returns to a normal state then we will see where mortgage rates fallout. Keep in mind that the longer term mortgage market had been heavily influenced the the Feds quantitative easing process over the last 15 years which resulted in artificially low rates.
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Mortgages track the 10-year US Treasury interest rate more than they track the short-term rates set by the Federal Reserve.
Since the election, mortgage rates have increased about 0.7%, because the bond market believes there will not be as much tax revenue to cover government expenditures, therefore they want mo’ money (interest) to compensate them for that added risk.
30-Year Fixed Rate Mortgage Average in the United States (MORTGAGE30US) | FRED | St. Louis Fed
Also, “NEW YORK/WASHINGTON, Nov 10 (Reuters) - Moody’s on Friday lowered its outlook on the U.S. credit rating to “negative” from “stable” citing large fiscal deficits”. That has an effect as well.
We could see 5% mortgages, or 3% or 4%… if we have a bad recession, and everyone runs to government bonds as a safe-haven, and since the bond market is just supply and demand, demand will go up, bond prices will go up, which means interest rates will go down. But that would be temporary. I think under normal conditions, mortgage rates will stay put or go higher.
Bond prices and interest rates move in opposite directions; that’s the Present Value math.If you own a bond mutual fund or ETF… how has it done since the end of October? If you look, you might let out a little yelp, then shut your laptop.
The other side of that, though, is as bonds fall in prices, and the yields get more attractive, investors will sell stocks and migrate to bonds. That option was NOT available during the 2022 market decline, because bonds had very litte interest to offer. Not so now.
If the 10-year Treasury gets above 5%, that’s going to start eroding stock market inflows, especially if the “weak hands” in the bond panic sell (because I made ya look) and spike yields higher.
The mortgage rate has been on a steady climb since the Fed rate cut in September.
The only reason we saw mortgage interest rates in the 3s was because of Fed manipulation thru Quantitative Easing policy
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