In Non-Technical Language - When Should We Expect Lower Mortgage Interest Rates?

As we all know, mortgage rates are currently very high.?? That said, when rates actually do start to decrease, it’s likely that they will drop very quickly.??

But why is that??

If you can bear with me for a few stray thoughts, we will make sense of this in just a moment.??

• First Stray ?Thought:?? Historically, there’s a rock solid relationship between the 10-Year Treasury and the interest rate for 30 Year Mortgages.? Specifically, the 30 Year Mortgage is typically 1.7% points higher than the 10-Year Treasury.
• Second Stray Thought:? Currently, the 10-Year Treasury is at 4.8%, so the 30-Year Mortgage Rate should be at 6.5% (4.8 + 1.7 = 6.5). However, the current 30-Year Mortgage rate is 7.5%, or 1.0% points higher than one would expect based on past historical data.
• Third Stray Thought:? ??The primary reason that the 30-Year mortgage rate is higher than historical norms is that the market is rather confused about the Fed’s rate increases and how long the Fed will continue to raise rates. Said differently, a confused market charges a higher price, or in this instance, ?the confused market is charging about 1% more in rate.
• Final Stray ?Thought:? ??Once the Fed announces the end of their rate increases, the market is likely to calm down, and a calmer market will no longer charge a premium to historical norms.

Tying all this together, what this means for Mortgage Interest rates is that once the Fed announces that it is halting interest rate increases, the 1.0% premium on mortgage interest rates is likely to disappear, and is likely to disappear very quickly.??

Rates could drop from 7.5% to 6.5% in a very short amount of time.

Once the Fed starts actually decreasing rates or the economy enters the expected recession (or both) mortgage rates should come down further.

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It’s quite likely rates could be 6.5% very quickly after the Fed announces that it is halting rate increases, ?and it’s not out of the question that rates could be in the low/mid 5’s on a 30 Year Mortgage should the economy fall into recession.

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The above is what is likely to occur.? When such happens, of course, is yet to be known.

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Further questions or requests for information on this topic may be communicated via LinkedIn or by reaching out at www.PaulDNagel.com.

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