MW Why mortgage rates could be heading to 8%, despite a possible Fed cut
By Aarthi Swaminathan
The 30-year rate inched up for the sixth week in a row ahead of an expected interest-rate cut by the Federal Reserve
The Federal Reserve is expected to cut its benchmark interest rate today, but mortgage rates are going up. One broker even expressed concern about the return of the 8% mortgage rate.
What's going on?
Much like the Fed, financial markets take cues from the health of the U.S. economy. The recent election of Donald Trump and the implications of a Trump presidency are causing concern, with markets worried - as evidenced by the increase in the 10-year Treasury yield BX:TMUBMUSD10Y - for several reasons.
The markets are expecting stronger economic growth, more spending by the federal government and higher prices due to more tariffs and lower taxes, Ralph McLaughlin, a senior economist at Realtor.com, said in a statement. (Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)
But "it's not always 100% clear what markets are thinking," he added.
The 10-year Treasury yield is one way to gauge how mortgage rates will trend. The 30-year rate rises and falls in tandem with the 10-year note - and that has been on a wild ride over the last few days.
The 30-year rate as of early November
Mortgage rates this week rose for the sixth week in a row, with the 30-year rate rising to an average of 6.79% on Nov. 7. That's the highest level in three months, according to data released by Freddie Mac on Thursday.
That's up 7 basis points from the previous week. One basis point is equal to one hundredth of a percentage point.
Rates are still substantially lower than they were in the last year. A year ago, the 30-year rate was averaging 7.5%.
The average rate on the 15-year mortgage averaged 6% this week, up 1 basis point from a week ago. A year ago, the 15-year rate averaged 6.81%.
Freddie Mac's weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.
"It is clear purchase demand is very sensitive to mortgage rates in the current market environment," Sam Khater, chief economist at Freddie Mac, said in a statement.
"As soon as rates began to rise in early October, purchase applications fell and over the last month have declined 10%," he noted, referring to data from the Mortgage Bankers Association published on Wednesday.
Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging 7.13% as of Thursday morning.
Mortgage rates expected to be volatile for now
Mortgage rates are expected to be volatile for the time being, as the markets try to figure out how a Trump presidency will unfold - and how that will affect the Federal Reserve's next moves.
Although a 25-basis-point cut to the Fed's policy rate was expected on Thursday, mortgage rates are expected to go up over the next week, Melissa Cohn, a regional vice president at mortgage lender William Raveis, told MarketWatch.
"Right now we're more worried about rates going to 8%, rather than going to 6%," she said.
Reading the tea leaves and timing the market might be tough in this environment. Home buyers might get a better deal if they're shopping while other buyers wait on the sidelines, Cohn said. "When there's more demand, you push home prices higher."
Although Rich Martin, senior vice president of retail lending at financial-data firm Curinos, doesn't expect the 30-year rate to go up to 8%, there's little chance of it going below 6% anytime soon, he told MarketWatch.
He expects the 30-year to fall below 6% only in 2026.
Between now and Inauguration Day on Jan. 20, 2025, home buyers can expect the 30-year rate to bump around in a range of 6.25% to 7.25%, Martin added.
It's a large range, he acknowledged, but the volatility is making the market a little unpredictable.
At Fannie Mae (FNMA), chief economist Mark Palim is gearing up to publish his November forecast for the housing market. In the October forecast, Palim's team had projected that the 30-year rate would average 5.9% in the first quarter of 2025.
That could change in the following month, since the 30-year is starting from a substantially higher point.
In an interview with MarketWatch, Palim noted that since the last Fed meeting on Sept. 17-18 and this week's meeting, the 10-year Treasury yield has seen a 75-basis-point increase, which has pulled up mortgage rates in tandem.
Looking ahead, rates appear to be flattish, he added, albeit at a higher level.
"It is possible that we go to 8%," Palim added, "but I don't think that is the base case."
In a recent survey of American consumers' views on the housing market, sentiment inched up slightly in October, Fannie Mae said. Nonetheless, only one in five consumers believed it to be a good time to buy a house.
-Aarthi Swaminathan
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(END) Dow Jones Newswires
November 07, 2024 12:14 ET (17:14 GMT)
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