The central bank is charting a difficult path ahead, while an end to the Iran conflict currently looks a distant prospect
The perennial question of where US mortgage rates are headed still has no easy answer amid an escalation in the US-Iran conflict and continuing uncertainty about the Federal Reserve’s path forward for the rest of the year.
Rates ticked slightly higher last week as hopes of a lasting truce in the war receded and oil prices posted another spike, stoking fears of an inflation flareup.
And 10-year Treasury yields have risen since Monday, raising chances of another jump in Freddie Mac’s gauge of 30-year fixed mortgage rates this week.
Many mortgage brokers see little prospect of significantly lower mortgage rates anytime soon. Oliver Orlicki, team lead at The Orlicki Group, told Mortgage Professional America the absolute “best-case” scenario for this year was a drop in rates below 6%, but that borrowers shouldn’t expect a bigger decline.
“I don’t really see rates getting much lower,” he said. “I think we’re going to bounce between 5.75% and 6.75% on 30-year fixed-rate mortgages for the rest of the year. I don’t see [the Fed] aggressively cutting at all unless something catastrophic happens or a World War starts.”
Broker expects stickier-for-longer rates
For borrowers who have been closely monitoring the rate outlook in recent months, a drop below the 6% mark would be a welcome development (the 30-year fixed average currently sits at 6.30%, according to Freddie Mac).
But others are still holding out hope for a steeper fall into the 5% range, an expectation Orlicki says doesn’t seem to be grounded in reality.
“I’m telling clients now – those people that are sitting around waiting for rates to drop into the fives – I don’t think it’s going to happen anywhere nearly as quick as anybody wants it to,” he said. “I think we’re going to be floating around the six to six-and-a-half range for quite some time unless things get dramatically worse with this war.”
The ultra-low-rate environment of the COVID-19 pandemic simply isn’t coming back, Orlicki emphasized – because it arrived due to a unique combination of factors including the economy grinding to a halt and massive intervention by the Fed.
Those conditions no longer exist, even if the Iran war has caused jitters about a potential economic slowdown and price shocks.
A sharp climb in mortgage rates in 2022, when the Fed began to hike its own funds rate as inflation ballooned, poured cold water over a red-hot housing market as the cost of borrowing suddenly shot upwards.
Rates ‘aren’t going to move down as quickly’ as some think
Some brokers say mortgage rates could move meaningfully lower if the presumptive next chair of the Federal Reserve, Kevin Warsh, is able to convince other members of the central bank’s rate-setting council, the Federal Open Market Committee (FOMC), that deep cuts are needed.
Still, few are expecting rates to tumble anywhere close to their COVID-19 level – and borrowers hoping for a return to pandemic-era rates need to adjust their definition of “normal,” according to Orlicki. He sees possible headaches ahead for buyers holding out for much lower mortgage rates before they wade into the market.
“Those people who’ve been sitting on the sidelines, I think, are coming to the realization that rates aren’t going to move down as quickly as they’d like,” he said. “And it’s a buyer’s market right now.
“We all know that if rates start coming down, values will probably move higher because you’ll have more qualified people out shopping with what we still consider very limited inventory.”
His advice to clients: if they find something they like, they can always refinance that rate at a later date. That makes sense, he said, because current advantages for buyers may not last if the market finally begins to heat up.
“I don’t think the concessions and everything else are going to be there six to 12 months from now when this pendulum eventually swings back to a seller’s market,” he said.
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