Brokers are taking a calm approach, but mortgage market watchers are still in the dark on the rate path ahead
The Federal Reserve’s decision to hold its benchmark interest rate steady on July 29 wasn’t exactly a surprise to mortgage market watchers – but it was still an announcement with plenty for the mortgage industry to pore over.
The decision extended the Fed’s streak of rate holds, although division at the central bank seems to be growing: three members of the Federal Open Market Committee (FOMC) favored a hike at the July meeting, marking the first time since 2016 that three members have opposed the Fed’s official call.
Ten-year Treasury yields, a key driver of 30-year fixed mortgage rates, spiked on Wednesday but ticked slightly lower by Thursday morning on the back of the Fed’s latest announcement. Still, they remain much higher than where they started the week.
Mortgage industry takes a calm approach amid rate uncertainty
Expectations around rate hikes in the months ahead are hardening. CME’s FedWatch tool, a gauge of financial market predictions for the Fed’s future path, sees a 63.4% chance of a 25-basis-point increase in the next decision (scheduled for mid-September).
But some mortgage professionals are still looking on the bright side, viewing the central bank’s July decision as one that’s unlikely to send prospective homebuyers flocking to the sidelines. “It was as expected,” Fif Ghobadian, senior vice president of mortgage lending at OriginPoint in San Francisco, told Mortgage Professional America.
“We kind of thought [the Fed] would probably stay level-headed and not make any changes, not increasing the Fed funds rate. I think it calms the waters.”
Mortgage rates have crept higher in recent weeks amid an unexpected escalation in the US-Iran conflict, even though they’re still below their level from 12 months ago.
While hopes of a big rate drop between now and the end of the year have faded fast since the outbreak of the Iran war, Ghobadian doesn’t see mortgage rates surging past the dreaded 7% mark anytime soon.
She said the jump in Treasury yields that followed the Fed’s announcement on Wednesday could prove short-lived.
“I don’t know if the rates are going to keep on going down, but… I think they’re going to dip down a bit and probably stay steady for a while,” she said.
According to the Mortgage Bankers Association (MBA), the average contract rate for 30-year fixed-rate mortgages now sits at 6.76%, up from 6.69% a week ago.
Still, mortgage professionals have suggested in recent weeks that their clients are less focused on weekly rate fluctuations and more on getting their own financial picture in order as they push ahead with a purchase.
How's the new Fed chair faring?
New Fed chair Kevin Warsh has struck a measured tone on the rate outlook since succeeding Jerome Powell earlier this year, reiterating his determination to get inflation under control despite repeated calls by President Trump for rate cuts.
But Warsh may have some convincing to do when it comes to bond markets. At 4.683% at time of writing, the 10-year Treasury yield has moved significantly higher this week even after inching lower overnight.
Part of markets’ unease stems from Warsh’s determination not to include forward guidance, or indications of Fed members’ expectations for the economy, in the central bank’s announcements.
“The policy statement conveys just the facts,” he said in Wednesday’s press conference. “It’s steering clear of forecasting, a choice we consider especially prudent at these uncertain times.”
Interactive Brokers chief strategist Steve Sosnick told CNN that markets seemed skeptical about Warsh’s determination to bring inflation down. “Really the market’s issue is, are you doing something?” he said.
“It’s one thing to talk about fighting inflation. It’s another thing entirely to do something about it. And again, it’s not clear what he’s doing about it.”
Ghobadian, though, views Warsh’s approach as the right one, and sees merit in a cautious strategy on rate policy. “[The hold] just gives us some hope, coupled with the fact that he’s not a rash decision-maker. He’s a level-headed guy,” she said. “Between those two things, we should hopefully see a bit of relief.”
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