Mortgage Rates Remain Above 6% Due to Inflation and Spreads
Rates stay near 6.5% despite oil price drops because mortgage spreads remain elevated. The Fed needs to cut rates further to lower costs.
Key points
- Rates may stay between 6.5% and 6.75% even if oil prices drop to $68-$70.
- Current mortgage rates would be 8.36% if spreads remained at 2023 peak levels.
- Breakeven job growth is roughly 33,000 jobs per month, limiting rate cut pressure.
U.S. mortgage rates will likely remain above 6% even if geopolitical tensions ease. This outcome is driven by persistent inflation and Federal Reserve policy.
HousingWire analyst Logan Mohtashami stated that oil prices and Treasury yields complicate the outlook. Rates could stay between 6.5% and 6.75% until the Fed provides clearer guidance.
Spreads Prevent Rates From Falling
Mortgage spreads have improved significantly compared to the 2023 banking crisis. If spreads remained at their 2023 peak, current rates would reach 8.36%.
Worst-case spread levels from 2024 would place rates near 7.96%. Last year’s peak spreads would translate to approximately 7.87% for borrowers.
Labor Market Limits Rate Cuts
The labor market is unlikely to force significant rate reductions soon. Breakeven job growth is estimated at roughly 33,000 jobs per month.
Weak monthly jobs reports may occur without substantially raising unemployment. Mohtashami noted that jobless claims are a better indicator of market stress.
Housing Market Stability Improves
Housing conditions have become healthier as home price growth cools. Inventory increases have reduced the risk of rapid price acceleration or decline.
Mohtashami disputes comparisons to the 2008 financial crisis. Current borrower equity and down payments are substantially higher than during the previous bubble.
Affordability, not inventory, remains the primary constraint on housing demand. Homeowners with low rates are not locked in, as sales continue steadily.
