If you didn’t get in on the housing market when interest rates were low, you may feel like you missed the boat.
The average rate on a 30-year fixed-rate mortgage is currently at about 6.7%. That’s down from 7.8% in late October, but way up from the 3% or so we saw in 2021.
For the casual observer, the culprit behind the climb is obvious. Starting in early 2022, the Federal Reserve began to hike its benchmark interest rate, which caused the rates on all sorts of debt to climb.
Orphe Divounguy, a senior economist at Zillow, would beg to differ. At a Zillow-sponsored event in October, he said that the Fed’s sway on mortgage rates was overstated. His thesis: “Don’t blame the Fed.”
If not the central bank, though, who?
Make It caught up with Divounguy in the new year to chat about the economic drivers of mortgage rates, where he thinks rates are headed in 2024 and whether or not it’s worth considering getting a mortgage with an adjustable rate.
CNBC Make It: The Fed sets short-term interest rates. Do mortgages tend to follow along?
Divounguy: Mortgage rates tend to follow the 10-year Treasury yield. We also know that very often there’s a spread between mortgage rates and the yield on the 10-year. Most of that spread is due to uncertainty about a number of factors in the market.
When it comes to the yield on the 10-year Treasury, which is kind of like the main driver of changes that we see, that depends on current inflation and economic growth, but also expectations over future inflation and future economic growth.
What has the picture looked like recently?
Inflation came down in the past year from almost 9% year-over-year to about 3%. We’ve seen some cooling of the labor market. We’ve seen a normalization in rent growth and price growth in the housing market. We’ve seen wage growth cooling. All of that tells me the U.S. economy is cooling.
As a result, yields have come down since October. In December, the Fed released its summary of economic projections, suggesting that it sees…
Read the full article here
