Economists have their say on what's in store
Many investors believe that US bond yields have peaked and will begin to decrease, potentially improving housing market affordability in the months ahead.
Inflation data for October showed a notable softening, boosting investor hopes that the Federal Reserve is done with interest rate hikes. A resulting treasuries rally saw bond yields fall close to the levels that had been predicted by bond strategists at the end of the year, Reuters said.
A cooling market
The yield on the 10-year Treasury note slid to 4.50%, occurring less than a month after it had hit the 5% level for the first time since 2007. With that, home loan costs have also decreased as the average interest rate on a 30-year fixed-rate mortgage fell from 7.9% to 7.5%, according to data from Freddie Mac.
Some analysts believe mortgage rates will decrease at a quicker pace as the spread between conventional 30-year mortgage rates and the 10-year Treasury yield normalizes.
Len Kiefer, Freddie Mac’s deputy chief economist, told Reuters that the gap had been partially driven by heightened volatility in the mortgage-backed securities market. Uncertainty and volatility of rates had played a part in the elevated mortgage rates.
With the measures of the bond market volatility falling earlier this year and bond yield possibly falling even further, home affordability may begin to improve.
Joel Kan, deputy chief economist at the Mortgage Bankers Association (MBA), said that the 30-year fixed-rate mortgage is likely to average around 6.2% for the fourth quarter of the year. The 10-year Treasury was also expected to decrease between now and the end of 2023.
The national median mortgage payment in September decreased by $15 from August when payments showed a slight increase to $2,170 in July, according to the MBA’s Purchase Applications Payment Index. Since 2022, the median mortgage payment rose steadily and is now 11% higher year over year.
Many economists believe that rates will continue to hover above 3.5%, Reuters said, which marks the previous decade’s median, even as home loan affordability appears to be improving.
Earlier this month, the Federal Reserve maintained its benchmark overnight policy rate in the 5.25%-5.50% for the second consecutive meeting. It was believed that the US central bank may have a soft landing for the economy that would allow yield to decrease and credit costs to lower down as the economic data softened and the aggressive rate hikes were expected to end.
“There are signs that there is going to be cooling around the corner when we look at the manufacturing and services sector gauges,” said Kan.
He believed that there was a possibility of a bigger slowdown within the services sector and a loosening of overall credit across the economy if job and wage growth cooled.
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