Four weeks ago, The Real Deal published a story headlined, “Mortgage rates at lowest levels in 19 months.”
Those were the days.
At that point, Sept. 11, the average 30-year, fixed-rate mortgage was 6.11 percent. A steady increase followed, and on Nov. 6, when Americans woke up to Donald Trump’s victory in the presidential election, the predominant mortgage rate was 7.13 percent.
“The big impact on rates this week was clearly the election,” said Mortgage Bankers Association chief economist Mike Fratantoni. “As results rolled in, longer-term rates jumped higher. Investors expect somewhat stronger economic growth, higher inflation, and larger deficits.”
Mortgage applications have fallen for six straight weeks, with rising rates as the likely culprit.
Rates had been pushing up for several weeks, however, so clearly more than the election outcome was at play. A variety of economic data influences investor behavior, which in turn affects the yield on 10-year Treasury notes. Long-term mortgage rates track long-term T-bills because they have similar length and risk profiles.
The Federal Reserve added its own ingredients to this cauldron of numbers Wednesday, reducing the federal funds rate by 25 basis points, as expected. The investment world had already baked in the cut to all of its models and was instead entirely focused on what Fed chair Jerome Powell might say about the future, in light of Trump’s election.
The answer: not much.
“We don’t guess, we don’t speculate, and we don’t assume,” Powell told reporters after the Fed released an official statement that offered no guidance about future rate cuts.
Divining Trump’s intentions
For rank-and-file real estate agents and mortgage brokers — whose incomes generally rise when mortgage rates fall — the bottom line is that rates on 10-year Treasuries, and thus on mortgages, will go up if the economy does, or if the Trump administration pumps a lot of money into it.
Stimulus is typically used to get a stagnant economy going, but the economy is not stagnant; it’s growing. That said, Trump is not your typical president. He seems intent on juicing the economy with tax cuts and perhaps funding injections to offset the effects of his planned tariffs.
Trump also wants aggressive rate cuts by the Fed, but that is technically beyond a president’s control, by design. The system was set up so the Fed wouldn’t make money too cheap, too quickly, although the Fed did so anyway around the onset of the pandemic.
That led to today’s housing market quagmire, where homeowners who locked in 3 percent (or cheaper) mortgages won’t give them up for the sake of moving, leaving residential agents with little inventory to sell.
The bottom line is that residential real estate’s long slog back to normalcy is not nearly over. This was supposed to be a comeback year for home sales, but mortgage applications for purchases are only 2 percent higher than they were a year ago, according to the Mortgage Bankers Association weekly survey.
“MBA expects that mortgage rates will remain within a fairly narrow range over the next year, Fratantoni said, “with mortgage rates moving higher on signs of economic strength and more stimulative fiscal or monetary policy, or lower if it’s the opposite.”
Take that with a grain of salt; the Mortgage Bankers Association’s predictions about rates falling have not panned out in the past year or so.
On the plus side, homeowners with the itch to sell will eventually stop waiting for rates to fall.
“Housing markets continue to be primed for a stronger spring homebuying season, boosted by more housing supply and slower home-price growth,” Fratantoni said, no doubt being careful to say “stronger” rather than “strong.”
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