Hopes for a strong spring home buying season are quickly being met with harsh economic realities related to the Iran war, inflation and other factors.
Hopes for a strong spring home buying season are fading as economic and political instability intensifies and mortgage rates hit six-month highs.
According to Mortgage News Daily, the average interest rate on a 30-year fixed-rate mortgage rose to 6.55% this week, an increase from Feb. 27, when rates finally reached the long-awaited 5.99%. Steadily rising U.S. Treasury yields have triggered higher mortgage rates, widening lender spreads by 2 to 3 percentage points. As of March 20, the yield on 10-year U.S. Treasury bonds reached 4.39%, the highest level in six months, as oil prices worsened due to the Iran conflict and inflation policy became complicated.
“The bigger question for the mortgage market is not the initial oil price spike, but whether higher energy prices are factored into the broader inflation outlook,” Sam Williamson, senior economist at First American, told Mortgage Professional America on Monday. “If this movement proves to be temporary, mortgage rates are unlikely to react much beyond short-term volatility.”
“If oil prices continue to rise and begin to spread to other goods and services, as well as inflation expectations, long-term government bond yields could rise, and mortgage rates could rise accordingly,” he said. “Market reactions are not always straightforward, as rising energy prices can also weigh on growth. That’s why persistence is more important than the hot move itself.”
Inman explained the link between oil prices, yields, interest rates and mortgages on March 16, and three economists said rising oil futures and fuel prices are likely to prompt the Federal Reserve to adjust its financial strategy. Two days later, on March 18, the Federal Reserve announced it would keep the federal funds rate in its target range of 3.50% to 3.75%.
In an official statement earlier this month, the Federal Reserve said, “Uncertainty about the economic outlook remains high. The impact of developments in the Middle East on the U.S. economy is unclear.” “The committee is mindful of the risks to both sides of the dual mandate.”[,]” includes “supporting maximum employment and returning inflation to the 2% target.”
Odeta Kusi, vice president and deputy chief economist at First American, said there are other indicators besides the 10-year Treasury yield and the federal funds rate that can tell you how mortgage rates will move in the coming months.
“We monitor key inflation reports including: [Personal Consumption Expenditures Price Index] and [Consumer Price Index] It’s important. “These two important aspects of the economy will give us a deeper understanding of what the Fed will do with monetary policy,” Inman said in a previous article. “The Fed will need to balance maintaining inflation stability alongside maintaining full employment on the labor market side.”
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