Mortgage Rate Volatility

Mortgage rates didn’t just jump for no reason. If you’ve been trying to follow the headlines, it probably feels confusing. One day rates dip below 6%, the next they’re back in the mid-6s. Most people assume it’s the Fed or a random market reaction. It’s not. Here’s what’s actually happening. Mortgage rates follow the 10-year Treasury, and the 10-year is moving almost in lockstep with oil prices right now. Since the conflict in the Middle East escalated, oil has surged. At one point reaching around $119 per barrel. At the same time, the 10-year Treasury jumped from ~3.96% to over 4.2%, and mortgage rates followed, moving from 5.99% back into the 6%+ range. That’s not coincidence. That’s how the system works. When oil prices rise, it creates fear that inflation could come back. When inflation fears rise, investors sell bonds. When bonds sell off, yields go up. And when yields go up, mortgage rates go up. So while everyone is focused on the Fed or waiting for inflation reports, the real driver right now is energy. And that’s actually important… because it tells us what to watch next. If oil prices stay elevated, expect continued volatility and upward pressure on rates. If oil stabilizes or pulls back, the 10-year Treasury will likely follow, and mortgage rates should ease with it. That’s the cycle. This is why markets feel unpredictable to most people. They’re watching the wrong indicators. The people who understand what’s actually driving rates aren’t guessing. They’re watching oil, watching bonds, and positioning themselves before the next move happens. Because in markets like this, the opportunity doesn’t come when everything feels clear. It comes right before it does.

The mortgage rate lock-in effect is easing—but it hasn’t gone away. National Mortgage Database (NMDB) data from Q4 2025 shows that 78% of mortgaged homes have a rate below 6%, down from a peak of 93% in mid-2022. That’s the lowest share since 2015. At the same time, 22% of outstanding mortgages now carry rates above 6%, exceeding the share with ultra-low rates below 3% (20%). The average rate on outstanding mortgage debt has risen to 4.4%. What’s driving the shift? The composition of mortgage debt is changing. More borrowers—both first-time buyers and repeat movers—are taking on mortgages at higher rates. Over time, these newer, higher-rate loans are replacing the historically low-rate loans originated in earlier years, reducing the lock-in effect. Put differently, the lock-in effect is easing as the share of higher-rate mortgages grows and the dominance of ultra-low-rate loans fades. The result is a housing market that remains constrained, but is gradually becoming more fluid over time.

US consumers got a USD 600 billion tailwind from locked-in #mortgages. We estimate the gap between existing and market rates for US mortgages has provided consumers with an extra USD 600 billion since early 2022 (up to 2% of disposable income). This has undermined the monetary #policy transmission mechanism and helps explain why US consumer spending has remained resilient to monetary tightening. The flip side of this means that locked-in mortgage rates may similarly limit the effectiveness of monetary policy easing, adding to the list of downside risks to growth and also to maintain #affordability pressures. For example, year-on-year house price growth has moderated to below 6%, but prices remain 60% above 2020 levels.   During the recent Federal Reserve monetary policy tightening cycle, market rates for US mortgages exceeded the average rate borrowers paid on existing mortgages by as much as 3.2 percentage points. Such a gap has significant economic implications: it lowers monetary policy effectiveness by supporting consumer resilience during hiking cycles and reduces the stimulus effect when rates ease. The structure of the US mortgage market causes this effect. Over 95% of US home loans are 15- or 30-year fixed-rate mortgages. By the end of 2Q24, the market rate for mortgages was roughly 7%, compared to an average existing mortgage interest rate of about 4%. We reviewed this gap for the two years through 2Q24 and estimate that homeowners with fixed-rate mortgages amassed over USD 600 billion in "savings" from their mortgages in the post pandemic expansion, amounting to nearly 2% of personal consumption spending. This helps explain why recent policy tightening did not, initially, appear to slow the economy.   We expect limited stimulus for consumer spending from the monetary policy easing cycle, expected to start in September, due to this low interest rate sensitivity of private consumption. With spending tailwinds fading though and equity markets priced to perfection, the downside risks to growth have risen, threatening a sharper easing cycle over the next year than our baseline currently assumes. https://lnkd.in/eTXtwBjC James Finucane, Mahir Rasheed, Jessica Oliveira Lee  

Check-in on UK Swap Rates and Mortgage Costs After a busy week of tricks, treats, and fireworks, it’s time for a quick look at swap rates and what they might mean for UK mortgage costs. In the short term, the right side of the graph shows that 2-5 year swaps are up by 40 basis points from pre-budget levels. This increase reflects the rise in gilt yields following the Chancellor’s budget last week, which included plans for increased taxation, borrowing, and public spending. While it’s not a repeat of the mini-budget turmoil from September 2022, it’s still the most significant short-term hike in rates since. Consequently, we can expect (and have already seen) mortgage rates to follow a gentle upward trend. As you can see below, the trend of rates gently following inflation downwards is very much now ended. However, in the very immediate term, this morning’s US election news has softened swap rates slightly, with 2-year money down by 6 basis points and 5-year money down by 4 basis points overnight. Despite both the budget and the election, markets still anticipate a further rate cut from 5% to 4.75% in next Thursday's announcement. Looking at implied rates, the forward curve has leveled off. This means that while another base rate cut is expected in 2024, the projected downward path has become less steep. Rates are now forecast to be around 4.15% by December 2025, with a gradual decline to 3.5% not expected until 2028 at the earliest. Finally, what does this mean for the 1m UK mortgages reaching the end of deals in the next 12 months? Short answer - don't try to play the market. Whatever your flavour your politics, the big news this week is likely to make the macroeconomic market more volatile, creating winners and losers on both sides. Get comfortable with what you can afford, don't bury your head in the sand, and take early action, even if only to get informed. Diarize six months before your existing deal expires and take advice from your lender or your intermediary before you make any big decisions. Strap yourselves in, I don't think the fireworks ended on 5th November. #mortgages #mortgagerates #Budget2024 #USElection #SwapRates

Mortgage rates hit 7.2% last week. Inventory of unsold homes subsequently increased this week for the first time all year. Price reductions ticked up too for the first time since November. Some of the home price signals are softening as potential home buyers are faced with higher-for-longer mortgage rates. These are the details we’re reviewing in this week’s Altos Research real estate market data. [video link follows in the comments] Inventory - There are now 498,000 single family homes on the market in the US.  - That’s almost 1% more than last week, and now 16% more than last year at this time.  - This is the first inventory increase of the year.  - Mortgage rates are up sharply from last year so inventory is too - In the Inventory chart below, the red periods are when rates and inventory were rising. The green sections are when rates and inventory were falling. Pending Home Sales - This week saw 59,000 new contracts started on single family homes, that’s 2% fewer than last week - The sales rate came in a fraction fewer than a year ago, which is what I projected last week but still disappointing - In the New Contracts Pending chart below you can see how sales growth could come in negative YoY in the next few weeks.  - I still expect home sales to show year over year growth again by mid-March, due to the fact that there is more selection available now. Price Reductions - Currently 30.4% of the homes on the market have taken a price cut from the original list price. That’s the first increase of the season in price reductions.  - In a few weeks we should have more price cuts than a year prior. - This is one of the “softening” indicators for future sales prices. Home prices are not declining, but appreciation is very slow. - In the Price Reductions chart below see how the rate is converging with last year’s curve. Since price cuts are a leading indicator for future sales prices, you can see exactly how consumers are reacting to rising mortgage prices. Pending Sales Prices - For the homes that went into contract this week, prices ticked down. The median price of single family homes newly pending is $375,000 - That’s 1% less than last week and 2% above a year ago.  - This is not a down-trend (yet). But something to keep an eye on. - In the Median Price of New Contracts chart below, see how the year-over-year gains are starting to wane. Home Prices - The median price of single family homes in the US is $429,000. That’s up 1% for the week. - The median price of the new listings is up to $410,000.   - The gradual upslope of both of the curves in the Median Home List Prices chart below is another “softening” indicator for home price appreciation for 2024.  - Last year at this time, the price momentum was gaining with surprising demand. Mortgage rates are much higher now and we can see the impact on price appreciation.

Is the summer housing market shaping up to be a continuation of the spring freeze? 🧊🏠 Nicole Friedman and I just co-wrote a new piece for The Wall Street Journal diving into the latest shift in the #housing market. While a brief respite in geopolitical tensions gave mortgage rates a temporary dip, a hawkish Federal Reserve and a three-year high in inflation (at 4.2% in May) mean that immediate relief for home buyers is unlikely this summer. Rates have already bounced back to around 6.66% according to Mortgage News Daily, and industry experts share a cautious outlook: -Brad Case (Homes.com) notes we are in a worse situation inflation-wise than earlier this year, seeing little reason for rates to drop substantially soon. -Jeff DerGurahian (loanDepot) shares that Fed Chairman Kevin Warsh’s recent message points to a long way to go before a meaningful drop. -Chen Zhao (Redfin) said that the Fed remains heavily focused on inflation over rescuing rate-sensitive sectors. For frustrated shoppers, the consensus from financial planners like Skee Orr, CFP®, AIF®, ATP Orr and James Mayo, CFA, CFP®, EA is to stop trying to time the macroeconomic swings. Focus on your personal timelines, secure your preapprovals early, and compare lender spreads to find the best options. Read our story to see where the market may be heading for the second half of 2026: https://lnkd.in/gYmtxify #HousingMarket #MortgageRates #RealEstate #PersonalFinance

I'm sure you'll see #headlines like "Mortgage rates plunged, falling to their lowest level in nearly a year." Indeed, Freddie Mac reported that mortgage rates fell sharply this week. The average #rate on a 30-year fixed rate #mortgage was 6.35%, down from 6.5% a week ago, and the lowest level since early October 2024 and the biggest weekly rate drop this year. How will the drop in rates impact #affordability? On average, the recent drop in rates has had zero effect on affordability, as home prices have continued to rise. Let’s compare the current market to the market buyers faced during the spring. In March, the median price of an existing home, according to the National Association of Realtors, was $403,100. Average mortgage rates were 6.65%. Assuming a 10% downpayment and average property tax and homeowner’s insurance costs, the monthly payment on the median-priced home would be $2,854.      Fast forward to today, the average rate on a 30-year fixed rate mortgage is 6.35%. Assuming home prices are flat year-over-year (i.e. that home prices stop climbing), the median sold price in September is estimated at $414,200. The median monthly payment, therefore, would be $2,854.    For real affordability gains, we need to see both a drop in mortgage rates and much slower price growth, or even home price declines.    However, the drop below 6.5% could have an important #psychological effect. Buyers who are not strictly priced out of the market could be enticed this fall as they see rates drop below the 6.5% threshold. https://lnkd.in/gg5QNj92  

The 10-year Treasury yield has breached 4.6%, climbing steadily even as recent CPI data came in below expectations and growth indicators cooled. So what’s behind the divergence? 📉 It’s not about the economy—it's about supply and structural demand. 👉 The U.S. government is issuing record amounts of debt to fund persistent deficits. 👉 Foreign central banks, traditionally key buyers, have stepped back. 👉 Domestic demand (pensions, insurers, and retail) is no longer absorbing new issuance at prior levels. 👉 Meanwhile, the Fed is still reducing its balance sheet via Quantitative Tightening, effectively withdrawing support from the long end of the curve. 📌 What does this mean for markets? • Mortgage rates are under pressure again, already nearing 7.2% for 30-year fixed loans—posing risks to housing affordability and demand. • Liquidity in the bond market is thinning, with wider bid-ask spreads and less depth—a concern for both primary dealers and asset managers. • Risk assets, particularly long-duration tech and growth stocks, are facing valuation headwinds as discount rates rise. 💡 Unlike previous cycles, rising yields aren’t translating into dollar strength—recent sessions have shown a synchronized pullback in U.S. equities, Treasuries, and the dollar, reminiscent of the 2022 late-cycle tightening phase. #Treasuries #BondMarket #QuantitativeTightening #MortgageRate #FixedIncome #LiquidityRisk

🏠 2025 Housing Market = A Levered Long on the Bond Market 📉📈 If you have a home and a mortgage, you are placing a bet that the bond market will rally. The lower your down payment, the more leverage you are applying to this trade. This has worked fantastically well for the past 40 years as bonds rallied to lower and lower rates, bolstering the liquidity in the residential housing market, and keeping affordability well in hand. In 2022, as rates began to climb, the housing market had so much extra steam and there was so much cash sloshing around the economy that home prices continued to go up. Even now, many parts of the country still show homes near their all-time-highs. Why the discordance? For 2025, the residential real estate market is anything but straightforward. Here’s what’s driving it—and why your mortgage is still more tied to Treasury yields than you might think. 📌 Market Forces at Play: • Tight Inventory: Listings remain historically low, even after a 17% YoY increase in inventories. Sustained price pressure isn't raging demand, it's unwilling sellers (see below "Lock-In Effect") • Tariffs Coming: New Construction sales up 7.4% (March), trying to fill the gap—but tariffs threaten to raise costs $7.5K–$10K per home. • Mortgage Relief, Sort Of: Rates have dipped below 7%, but volatility remains high and relief is marginal for most. 🚨 Active Risks: • Affordability Crisis: Median US home price is $416,900. At today’s rates, 70% of households can’t afford a $400K home. Add to it homeowners' insurance skyrocketing and property taxes up and it exacerbates unaffordability. • Lock-In Effect: 82% of homeowners have mortgages under 6%, leading to stagnation in resale inventory—sales near 30-year lows. • Tariff Volatility: Bond yields overall are rising—and mortgage rates follow—making housing more expensive and unpredictable. Core Insights: 💡 Buying a home with a mortgage = leveraged exposure to interest rate risk. Mortgage rates shadow the 10-year Treasury. A jump from 5% to 7% on a $400K mortgage = $553/month more in payments. 💡 A key market concept in almost any market is that the less liquid a market is, the less reliable and more volatile the current market condition will be. It becomes a more fragile market that is more and more subject to change. 💡 If there are less willing sellers and less able buyers, then our observation that the residential real estate market being near all-time-highs should be viewed as a condition about to change. When? #HousingMarket #RealEstate2025 #MortgageRates #TreasuryYields #BondMarket #MacroTrends #Investing #RateRisk

There’s A Lot Of Talk About Mortgage Spreads Tightening But Not Much Explanation. So If You Feel Like Nerding Out…You’ve Come To The Right Place. After the Jackson Hole meeting, the Fed seems poised to cut rates, reducing uncertainty in the mortgage market. This shift supports agency mortgages, now viewed as attractive due to historical pricing and lower credit risks relative to other investments like Corporate credit. With the Fed and domestic banks likely increasing their market presence, mortgage demand is expected to rise. Reasons Mortgage Spreads Could Be Tightening: 1. Fed Rate Cuts: The Fed's leaning towards steady rate cuts reduces market uncertainty, supporting mortgage values and encouraging investment. 2. Improved Demand: With clarity on Fed policy, banks may feel more comfortable adding mortgages to their balance sheets, increasing demand. 3. Negative Net Issuance: A reduction in conventional mortgage issuance is favorable as it limits supply, helping tighten spreads. 4. Lower Volatility: A significant decrease in market volatility enhances mortgage valuations, making them appealing to investors. 5. Relative Value: Mortgages are at average levels historically, making them attractive compared to other asset classes at tighter spreads. Counterpoints Against Spreads Tightening: 1. Risk of Wider Credit Spreads: If credit spreads in other asset classes widen, mortgages, as a risk asset, may not escape this trend. 2. Timing Uncertainty: Banks may delay adding mortgages to their balance sheets until they have full clarity on regulatory proposals, slowing demand. 3. Prepayment Risk: If interest rates rally, prepayment speeds may increase, potentially leading to a demand for higher compensation from investors, which can pressure spreads. 4. Overall Market Conditions: If broader risk assets underperform, it could negatively impact mortgage performance, hindering potential spread tightening. The final conclusion is that while mortgages are not necessarily cheap, they are trading at long-term averages, making them attractive in the current market. The combination of the Fed's anticipated rate cuts, improving demand dynamics, and lower volatility creates a supportive backdrop for mortgages. The hope is that this continual grind lower in spreads, for the reasons listed above, will help mortgage rates go lower EVEN if the 10-year Treasury stays in the 4.25% range. Hope this helped!