It’s been a tough week for mortgage rates, which are reeling from fresh violence in the Middle East.
The ceasefire that started on June 17 is apparently no longer in effect, as there have been major strikes between the US and Iran over the past few days.
That puts renewed pressure on oil prices, bond yields, and mortgage rates.
But despite all that, the chances of the 30-year plan going up significantly from here remain very low.
That’s if you believe it’s possible…
Only a 28% Chance of a 30 Year Fixed Rate Going Up Above 7%?
The latest probabilities from the Kalshi prediction market indicate that there is only a “28% chance” that the 30-year fixed rate will rise above 7.0% sometime this year.
For reference, the 30-year fixed rate currently averages 6.43%, based on Freddie Mac’s weekly mortgage rate survey.
That number is sure to go up when they release their update today, but it’s only 50 points away from being in the money.
Meanwhile, all I hear is people saying mortgage rates are going back 10% or more!
Or they will be in double digits soon. Blah blah blah.
Then I tell myself that we will not even break 7% and you are telling me that they will reach 10%?
It seems that high interest rate predictions are driven more by emotion than real sense.
See search higher interest rates because they think it will fix things and stop prices from going higher and higher.
Maybe, but are such prices worth it? It’s not the 1980s anymore.
Yes, we have a kind of energy shock, but we also have more independent energy today than we did then.
The Fed also knows how to manage inflation much better today than it did back then because of mistakes learned along the way.
So to think that interest rates will compete with those seen in the 1980s when 30-year fixed rates reached 18% may be foolish.
And it may explain why even the chances of an increase of even another 50 bps are still long.
How Can Mortgage Rates Return to 7% or Higher?
Now just because the odds are low doesn’t mean it won’t happen.
There have been many instances where the unexpected happened and the underdogs cashed in.
Kalshi uses Freddie Mac’s Primary Mortgage Market Survey (PMMS) to determine the result and as noted, it is currently 6.50%.
In order for mortgage rates to rise another 50 bps this year, we will need a lot of continued hot economic data to emerge.
The two main factors that affect mortgage rates are inflation and labor force data.
That means we’ll need hot prints of CPI, PPI, and PCE and hot jobs reports for the next few months, probably without compromise.
Last month, inflation rose above 4% for the first time in three years, according to the Bureau of Labor Statistics (BLS), but it was largely tied to volatile energy costs related to the Iran conflict.
When energy and food were taken out, the core CPI was up only 2.9% from last year.
It’s still up and above the Fed’s 2% target and possibly enough to entertain some rate cuts later this year if it doesn’t improve.
However, there is also a labor market, and that has not been so hot lately. The latest reports were not tepid at any time, but the Fed still has to balance inflation and jobs.
And if jobs remain weak, there may be a limit to how much they can go up, meaning maybe one or two 25-bp hikes, despite inflation concerns.
The takeaway here is that despite inflationary conditions, most of which have just been caught up in the war, the economy does not look strong.
So even if there is upward pressure on interest rates, it may prove to be temporary and offset by rising unemployment.
Finally, let’s not forget that mortgage rates have increased by about 0.75% since the end of February when the dispute began, so a lot of risk has already been included.
That is why a 7% mortgage rate, which is not at all unheard of, may remain impossible.
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 20 years ago to help prospective (and current) home buyers better navigate the mortgage process. Follow me on X for the hottest.
