Even if Federal Reserve Chairman Jerome Powell and his allies stop raising policy rates soon, 30-year fixed mortgage rates will still be at 10%, according to Christopher Waren, chairman of Walen Global Advisors. will rise.
That’s because the Fed’s breakneck pace of rate hikes in 2022 will take time to trickle down into mortgage rates. Federal funds rates have already jumped into the 3% to 3.25% range At the end of September, it was almost zero a year ago.
“Lenders are just slowly adjusting interest rates,” Whalen told MarketWatch. “They’re not used to interest rates moving this fast, and usually he only changes them once a month or every other month.”
Borrowers pay a premium on mortgages above the risk-free Treasury rate to account for the risk of default. 30 year government bond yield
It rose to 4.213% on Thursday, the highest since 2011, according to Dow Jones Market Data.
Freddie Mac announced 30-year mortgage rates on Thursday Among them, the average was 6.94% The latest weekly survey shows a 20-year high, with demand for new mortgages dropping significantly.
However, with US inflation showing no clear signs of reversing its 40-year high, the Fed could raise rates by another 75 basis points at its November meeting, with a similar increase in December. Expectations are high that it is possible. , according to the CME FedWatch tool.
Thursday CME odds 4.75% to 5% Fed Funds Rate Support February begins.
“Mortgage has a lag effect,” Whalen said, adding that even if the central bank decides to pause further rate hikes after its December meeting, the 30-year mortgage rate will be “until February. It will easily reach 10%,” he added.
An investment banker, author and expert with a focus on banking and mortgage finance, Whalen urged the US Securities and Exchange Commission in 2008 to move complex and opaque derivatives. “In the light of day againAfter banks and investors saw hundreds of billions of dollars in losses related to structured debt, including subprime mortgage exposures. 2009 congressional testimony On systemic risk in the banking industry.
Now, Whalen sees another big shake-up in mortgage banking as profitability continues to be squeezed (see chart) and the housing market is in turmoil.
Importantly, Whalen also sees that if interest rates remain high through 2023, house prices could recoup all the pandemic gains.
it’s a bigger call Compensation estimate of 10%-15% Rise in home prices from prices that surged 45% nationwide during the pandemic.
But Whalen sees speculative home resale volumes reaching about $150 billion in 2022, or 10% of total home sales in 2022, and double-digit mortgages as a catalyst for the plummeting home prices. Pointed to the cold blanket of interest rates.
Economists at Mizuho Securities said in a client note Thursday that median home sales prices were down 2.5% from their peak, characterizing the housing market as “worsening” but a steep rise in mortgage rates. Given the uptick, it was about as expected.
Mortgage interest rates can be traced directly to the mortgage-backed securities (MBS) market. MBS, mostly government-backed bonds traded on Wall Street, fund a large portion of the nearly $13 trillion U.S. mortgage market.
The Fed’s race to raise interest rates has rocked financial markets this year, driving stock prices down and significantly reducing mortgage bond issuance. And businesses, municipalities and households are making borrowing more expensive as part of their fight against inflation.
“It will take months to get the bond and lending markets in sync so people can make money again,” said Whalen.
The stock market fell for a second day in a row on Thursday and the S&P 500 Index fell.
23% off 3,665.78 p.a. and 10-year Treasury yield
4.225%, the highest since June 2018.