Global Trends in Mortgage Rates

Mortgage rates didn’t just jump for no reason. If you’ve been trying to follow the headlines, it probably feels confusing. One day rates dip below 6%, the next they’re back in the mid-6s. Most people assume it’s the Fed or a random market reaction. It’s not. Here’s what’s actually happening. Mortgage rates follow the 10-year Treasury, and the 10-year is moving almost in lockstep with oil prices right now. Since the conflict in the Middle East escalated, oil has surged. At one point reaching around $119 per barrel. At the same time, the 10-year Treasury jumped from ~3.96% to over 4.2%, and mortgage rates followed, moving from 5.99% back into the 6%+ range. That’s not coincidence. That’s how the system works. When oil prices rise, it creates fear that inflation could come back. When inflation fears rise, investors sell bonds. When bonds sell off, yields go up. And when yields go up, mortgage rates go up. So while everyone is focused on the Fed or waiting for inflation reports, the real driver right now is energy. And that’s actually important… because it tells us what to watch next. If oil prices stay elevated, expect continued volatility and upward pressure on rates. If oil stabilizes or pulls back, the 10-year Treasury will likely follow, and mortgage rates should ease with it. That’s the cycle. This is why markets feel unpredictable to most people. They’re watching the wrong indicators. The people who understand what’s actually driving rates aren’t guessing. They’re watching oil, watching bonds, and positioning themselves before the next move happens. Because in markets like this, the opportunity doesn’t come when everything feels clear. It comes right before it does.

The 10-year Treasury yield has breached 4.6%, climbing steadily even as recent CPI data came in below expectations and growth indicators cooled. So what’s behind the divergence? 📉 It’s not about the economy—it's about supply and structural demand. 👉 The U.S. government is issuing record amounts of debt to fund persistent deficits. 👉 Foreign central banks, traditionally key buyers, have stepped back. 👉 Domestic demand (pensions, insurers, and retail) is no longer absorbing new issuance at prior levels. 👉 Meanwhile, the Fed is still reducing its balance sheet via Quantitative Tightening, effectively withdrawing support from the long end of the curve. 📌 What does this mean for markets? • Mortgage rates are under pressure again, already nearing 7.2% for 30-year fixed loans—posing risks to housing affordability and demand. • Liquidity in the bond market is thinning, with wider bid-ask spreads and less depth—a concern for both primary dealers and asset managers. • Risk assets, particularly long-duration tech and growth stocks, are facing valuation headwinds as discount rates rise. 💡 Unlike previous cycles, rising yields aren’t translating into dollar strength—recent sessions have shown a synchronized pullback in U.S. equities, Treasuries, and the dollar, reminiscent of the 2022 late-cycle tightening phase. #Treasuries #BondMarket #QuantitativeTightening #MortgageRate #FixedIncome #LiquidityRisk

There’s A Lot Of Talk About Mortgage Spreads Tightening But Not Much Explanation. So If You Feel Like Nerding Out…You’ve Come To The Right Place. After the Jackson Hole meeting, the Fed seems poised to cut rates, reducing uncertainty in the mortgage market. This shift supports agency mortgages, now viewed as attractive due to historical pricing and lower credit risks relative to other investments like Corporate credit. With the Fed and domestic banks likely increasing their market presence, mortgage demand is expected to rise. Reasons Mortgage Spreads Could Be Tightening: 1. Fed Rate Cuts: The Fed's leaning towards steady rate cuts reduces market uncertainty, supporting mortgage values and encouraging investment. 2. Improved Demand: With clarity on Fed policy, banks may feel more comfortable adding mortgages to their balance sheets, increasing demand. 3. Negative Net Issuance: A reduction in conventional mortgage issuance is favorable as it limits supply, helping tighten spreads. 4. Lower Volatility: A significant decrease in market volatility enhances mortgage valuations, making them appealing to investors. 5. Relative Value: Mortgages are at average levels historically, making them attractive compared to other asset classes at tighter spreads. Counterpoints Against Spreads Tightening: 1. Risk of Wider Credit Spreads: If credit spreads in other asset classes widen, mortgages, as a risk asset, may not escape this trend. 2. Timing Uncertainty: Banks may delay adding mortgages to their balance sheets until they have full clarity on regulatory proposals, slowing demand. 3. Prepayment Risk: If interest rates rally, prepayment speeds may increase, potentially leading to a demand for higher compensation from investors, which can pressure spreads. 4. Overall Market Conditions: If broader risk assets underperform, it could negatively impact mortgage performance, hindering potential spread tightening. The final conclusion is that while mortgages are not necessarily cheap, they are trading at long-term averages, making them attractive in the current market. The combination of the Fed's anticipated rate cuts, improving demand dynamics, and lower volatility creates a supportive backdrop for mortgages. The hope is that this continual grind lower in spreads, for the reasons listed above, will help mortgage rates go lower EVEN if the 10-year Treasury stays in the 4.25% range. Hope this helped!

Why Aren’t Mortgage Rates Dropping with Rate Cuts? 📈 Here’s What’s Really Happening… The Fed has recently cut rates but mortgage rates have either stayed flat or even gone up. So, why aren’t mortgage rates dropping with those cuts? Let’s break it down. 1 ::: Mortgage Rates Are Tied to Long-Term Inflation Expectations The Fed’s rate cuts affect short-term borrowing costs. But mortgage rates are more closely linked to long-term factors like inflation. If investors believe inflation will remain high they demand higher yields on long-term investments. This pushes mortgage rates higher— even when the Fed cuts rates. 2 ::: Bond Market Dynamics Mortgage rates are influenced by the bond market particularly mortgage-backed securities (MBS). When demand for MBS is low investors require higher returns to buy them. This leads to higher mortgage rates. So, even though the Fed is cutting rates the bond market might not be as optimistic. 3 ::: Bank Lending Standards Banks are reacting to economic uncertainty by tightening their lending standards. Even with lower Fed rates banks may raise mortgage rates to maintain profit margins. This is to offset risk and ensure they’re still covered. So, lower Fed rates don’t always translate to cheaper mortgages. 4 :::Global Economic Uncertainty Global factors like geopolitical tensions and economic slowdowns can impact mortgage rates. When uncertainty is high, investors flock to safer assets like U.S. Treasury bonds. This causes mortgage rates to rise as MBS become less attractive in comparison. The global picture plays a big role even if the Fed cuts rates domestically. 5 ::: Lack of Confidence in the Housing Market The housing market itself can influence mortgage rates. If home prices are expected to keep rising or there’s a shortage of homes, lenders may raise rates. They want to offset the risk of a slowing market. Mortgage rates can also rise if home sales or refinancing activity dips. What does this mean for you as a borrower? Even with the Fed cutting rates mortgage rates aren’t guaranteed to fall. The factors driving mortgage rates are more complex than just short-term moves by the Fed. _____ Do you think mortgage rates will drop soon or is this just the beginning of a longer trend? Let me know your thoughts in the comments! 👇

The Fed just cut rates again — and mortgage rates 𝘸𝘦𝘯𝘵 𝘶𝘱. Most people assume lower Fed rates mean cheaper mortgages. But this week, the average 30-year fixed rate 𝘫𝘶𝘮𝘱𝘦𝘥 to 6.33%, the largest weekly rise since February. Homebuyers are frustrated. Sellers are confused. And everyone’s wondering: what gives? It’s called “𝘁𝗵𝗲 𝗿𝗮𝘁𝗲-𝗰𝘂𝘁 𝗽𝗮𝗿𝗮𝗱𝗼𝘅.” When the Fed cuts rates, it often signals worry about the economy, which pushes bond yields (and mortgage rates) higher in the short term. 𝗪𝗵𝘆 𝗶𝘁 𝗳𝗮𝗶𝗹𝘀: 1️⃣ Mortgage rates follow long-term bond yields, not the Fed’s short-term rate. 2️⃣ Investors expect inflation to linger longer than the Fed admits. 3️⃣ The recent government shutdown delayed key data, leaving markets guessing — and uncertainty always costs more. So even though the Fed is trying to 𝘭𝘰𝘰𝘴𝘦𝘯 policy, the housing market feels 𝘵𝘪𝘨𝘩𝘵𝘦𝘳. Buyers are facing higher monthly payments, sellers are holding back, and affordability is shrinking further. Don’t wait on the Fed to “save” the housing market. Rates may stay elevated until inflation and uncertainty cool off. Instead, focus on what you 𝘤𝘢𝘯 control — your credit, your savings, and your timing.

Federal Reserve Chair Jerome Powell recently indicated the central bank is not in a rush to lower rates, leaving investors split on the likelihood of another 25-basis point cut in December, and calling into question the pace and extent of rate cuts in 2025. More importantly, recent history suggests that the yield on the 10-year Treasury bond is less sensitive to changes in the fed funds rate and more responsive to the longer-term outlook. That means mortgage rates won't decline significantly through the end of the year and into 2025 unless the Fed throws a curveball, such as cutting rates even more than expected, which would likely signal recession risk has risen significantly. Nonetheless, even modest declines in the mortgage rate could bring some buyers off the sidelines. According to our analysis of 2024 ASEC data, a decline in mortgage rates from the mid-November level of 6.8 percent to the projected rate of 6.2 percent would increase the share of renter households that can afford the median-priced home by nearly 3 percentage points, or just over a million renter households. Small movements in mortgage rates can make a big difference for many potential home buyers.

Treasury yields keep pushing higher as investors brace for a more inflationary and fiscally expansionist regime in the US. The benchmark ten-year yield is holding near 4.43 percent this morning - up from 3.8 percent in September - and credible observers are suggesting that a break back above the 5-percent threshold is possible. This is important because in today’s global financial system, higher US yields translate directly into higher borrowing costs elsewhere. To illustrate: over the decades, Canada’s five-year conventional mortgage rate - which is ultimately driven by rates available in domestic bond markets that have to compete for international capital - has often tended to follow changes in Treasury yields more closely than the Bank of Canada’s policy rate, occasionally even moving in an opposing direction. It’s not that Canadian central bankers are powerless, but the global rates backdrop makes a huge difference in a small, open economy like Canada’s. It’s deeply arguable, and there are many uncertainties ahead, but it’s possible that currency markets are too focused on the trade implications of a second Trump term, and not enough on the consequences for global financial conditions. *To get daily notes on the intersection between currency markets and the real world, subscribe here: https://lnkd.in/g5sD4ZJ9

Everyone expected mortgage rates to fall in 2024. Instead, mortgage rates remained stubbornly elevated -- even as the Federal Reserve cut rates three times, 30-year loan rates hovered closer to 7 percent than 6 percent. Greg McBride, Bankrate's Chief Financial Analyst, forecasts more of the same in 2025. He expects rates to bounce around throughout the year and land at 6.5 percent by the end of 2025. “The average 30-year fixed mortgage rate will spend most of the year in the 6’s, with a short-lived spike above 7 percent, but never getting below 6 percent," says McBride. "Continued economic growth and worries about inflation and government debt will keep mortgage rates elevated.” The Fed’s fingerprints were all over two recent moves in mortgage rates – when rates plummeted during the pandemic, and then when mortgage rates soared in 2022 and 2023. Now, though, mortgage rate movements seem mostly separate from Fed policy. Read more on what Bankrate has forecasted for mortgage rates in the coming months. https://lnkd.in/eC5vxi6i

The 30-year fixed #mortgage rate fell to 6.65% in the week of March 13, according to Freddie Mac. The rate is essentially unchanged from the prior week of 6.63% following seven weeks of decline since rates shot up to 7.04% in the week of January 16. Will #mortgage rates continue to fall? Likely yes. The 30-year mortgage rate has closely followed the 10-year Treasury note, with a spread at 2.4 percentage points. The 10-year T-note yield fell from 4.67% on February 12 to a low of 4.08% on March 3, although it picked has picked up to 4.23% as of March 13. Rates will fall if financial investors continue to push down bond prices and move out of stocks, and that is what is still happening. The S&P 500 fell 1.2%, the Dow Jones sank about 460 points and the Nasdaq fell 1.7% on Thursday as the trade war escalated with EU announcing retaliatory measures and the US retaliating with a 200% tariff increase on alcohol. Yields have fallen due to movement from stocks to the safer T-notes given heightened risk of an economic slowdown (or even a recession) with a 25% #tariff on steel and aluminum taking hitting Canada, Mexico, EU, Brazil, Ukraine, South Korea on March 12. Tariffs on goods imported from China are now at 20% after an additional 10% increase went into effect on March 4. The decline in #mortgage rates has bolstered the mortgage lending, according to the Mortgage Bankers Association. However, don't expect a strong surge in borrowing even as mortgage rates decline as potential homebuyers also weight other factors like #job security, opportunity, and #inflation and effect on their #purchasing power. Miami Association of Realtors

Are interest rates where they should be? Our latest analysis explores the equilibrium level of interest rates, the point where rates naturally settle over time and how today’s rates compare, despite recent global shocks. Key takeaways: ▪️ The federal funds rate is currently above equilibrium, with trade policy uncertainty playing a big role. ▪️ Mortgage rates remain elevated due to bond market volatility and increased investor risk. ▪️ Corporate bond yields are lower than expected, suggesting investors are underestimating credit risk. ▪️ Long-term Treasury yields are near their equilibrium but sit in a fragile market facing political and fiscal headwinds. Even after a global pandemic, war, and economic disruption, interest rates aren’t far off track but risks remain. Read the full report to explore our framework and forecasts: https://lnkd.in/ehuN5D9N Cristian deRitis, Damien Moore, Martin Wurm #interestrates #fundsrate #EquilibriumRate