Welp, the month of May is fickle and house prices are doing their usual thing; Go up!
Despite spring being peak home buying season, mortgage rates are often more expensive this time of year.
This is historically speaking and may vary from year to year, but so far it seems to be trending.
Higher driving rates have recently been a battleground in Iran alongside warmer-than-expected jobs data.
If it continues, expect a reassessment of the recent high rate of the 30-year fixed mortgage and 7 handles.
Mortgage Rates Continue to Come Under Pressure
Recently, loan rates have come under significant pressure due to the Iran conflict.
Without it, mortgage rates were at their best levels in about 3.5 years, or since the summer of 2022.
That was the same year the 30-year fixed rate was at 3-year lows, before QE ended and the Fed began hiking rates.
So the fact that we were that low was pretty good all things considered.
The problem now is that we have started another war and Iran does not look ready to make a deal anytime soon.
Meanwhile, the Strait of Hormuz is choked and that leads to more expensive oil, which affects prices for everything.
All of that leads to inflation, combined with recent hot labor numbers, putting upward pressure on mortgage rates.
Simply put, a hot economy = high mortgage rates, all else being equal.
The result is a 30-year fixed rate back around 6.50% instead of below 6% as it was at the end of February.
What’s Next for Mortgage Rates?
I personally see them moving higher in the short term, on the basis that the Iranian conflict is dragged out.
We keep hearing rumors of a peace deal or some sort of resolution, but then we’re told that the two sides are too far apart and will never demand X, Y, and Z.
Therefore, the barrier continues and it is difficult to see a quick and painless way out of it.
Eventually that hits the inflation numbers, and bonds (and mortgage rates) don’t like inflation so they have to go up.
At the same time, the work continues to be visible firmness despite all the warnings that AI will take over all our jobs.
Assuming this happens, the 30 year fixed rate, already around 6.50%, goes up to 6.625% and even higher, maybe 6.75% or 6.875%.
Does it go to 7% again? I hope not as the spring home buying season is already looking bad with existing home sales up just 0.2% in April from March and down from a year earlier.
In other words, the same 30-year decline in home sales, except many think 2026 will be the year of change.
And the housing market can’t take another gut-punch as it already seems to be running on cheap smoke.
The other scenario is that a peace deal is reached, workers are suddenly less fired up, and a conservative Fed led by Kevin Warsh attempts to resume rate cuts.
That would be a way to get mortgage rates back to their winning ways and sub-6% again, although it won’t happen until after the spring home buying season.
But it could still happen before the midterms and give Trump something to brag about, since lowering mortgage rates has also been a key policy goal.
(photo: FutUndBeidl)
