Welp, the month of May is fully in swing and mortgage rates are doing what they normally do; go up!
Despite spring being peak home buying season, mortgage rates are often the most expensive during this time of the year.
This is historically speaking and can vary from year to year, but so far it’s looking to be on trend.
Driving rates higher lately has been the ongoing war in Iran coupled with some warmer-than-expected jobs data.
If it continues, expect a re-test of recent highs for the 30-year fixed mortgage and possibly a 7-handle.
Mortgage Rates Continue to Be Under Pressure
Lately, mortgage rates have been under a lot of pressure thanks to the Iranian 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 was still in the low-3s, before QE ended and the Fed began hiking rates.
So the fact that we were that low was pretty darn good all things considered.
Problem now is we’ve started another war and Iran doesn’t look ready to make a deal anytime soon.
Meanwhile, the Strait of Hormuz is choked off and that’s leading to really expensive oil, which affects prices on everything.
That all leads to higher inflation, which combined with hotter labor numbers of late, puts upward pressure on mortgage rates.
Simply put, hot economy = higher mortgage rates, all else equal.
The end result is a 30-year fixed back around 6.50% instead of being sub-6% as it was at the end of February.
What’s Next for Mortgage Rates?
I personally see them going higher in the short-term, on the basis that the Iranian conflict is dragged out.
We keep hearing rumblings of a peace deal or some sort of resolution, but then we’re told the two sides are far apart and will never go for X, Y, and Z offer.
As such, the impasse continues and it’s hard 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 must go up.
At the same time, labor continues to show resiliency despite all the warnings that AI will take all of our jobs.
Assuming this transpires, the 30-year fixed, already around 6.50%, climbs that to recent highs of 6.625% and beyond, perhaps 6.75% or even 6.875%.
Does it go all the way to 7% again? I sure hope not as the spring home buying season already appears to be a dud with existing home sales up just 0.2% in April from March and flat from a year earlier.
In other words, more of the same 30-year lows for home sales, despite many thinking 2026 would be the turnaround year.
And the housing market can’t take another gut-punch as it already appears to be running on fumes with affordability so poor.
The alternative scenario is a peace deal is reached, labor isn’t so hot all of a sudden, and a new-look Fed led by Kevin Warsh attempts to resume rate cuts.
That would be the way to get mortgage rates back to their winning ways and sub-6% again, though it wouldn’t happen until after the traditional spring home buying season.
But it could still unfold before the midterms and give Trump something to boast about, as getting mortgage rates low again was a key policy goal.
(photo: FutUndBeidl)
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