Mortgage Rate Trends

The recent decline in mortgage rates—staying below 6.5% for most of September—is a meaningful shift for housing. Though it may not feel like much for those accustomed to 2% or 3% rates, even small drops can have a major impact on affordability.   For example, moving from 7% to 6.5% puts 2.125 million more households in a position to buy. If rates were to fall to 6%, that number more than doubles, pricing in another 4.246 million households.   That said, it's important to consider the underlying reason behind the decline: the cooling labor market. Our historical research shows a consistent two-phase dynamic between the economy and housing:   Phase 1. A slower job market initially reduces housing demand despite lower rates. This is driven by job insecurity and weaker consumer confidence. Phase 2. Falling interest rates eventually outweigh those headwinds, helping revive sales activity.   Right now, the housing market is still in Phase 1. This is consistent with the historical pattern where housing acts as a leading indicator—it slows before the broader economy but also turns the corner sooner. Zonda Alexander Edelman Trevor Tetzlaff Sean Fergus Sarah Bonnarens Tim Sullivan Keith Hughes Cameron McIntosh Kyle Cheslock

Higher mortgage rates in the UK are eventually going to hurt.   Markets have now moved to price in a 6.5% peak in UK interest rates by February 2024 and for rates to stay above 6% until the end of 2024.   Given the recent shift higher in swap pricing, which affects the fixed mortgage rates banks can offer, new 2 year fixed mortgage rates could soon be close to 6.5%, even for borrowers with significant equity in their property.    Two years ago borrowers with a 25% or more deposit could fix their mortgage for 2 years at about 1.5%.   Anyone with a fixed rate deal that is soon coming to an end and has to refinance soon, will see their mortgage payments rise significantly. This should put downward pressure on discretionary spending as more and more cheap fixed mortgage rates expire.   Another 2.4 million fixed rate mortgage deals are set to expire between now and the end of 2024.   As the chart below shows, if a household has to refinance from a mortgage rate of 1.5% to 6.5%, their mortgage payments would rise by over 80% (assuming they maintain the term of the loan at 30 years on a repayment mortgage).   They might choose to extend the term of the mortgage to reduce the monthly payments (but substantially increase the total interest paid over the term of the loan).   But increasing from a 30 year term to 35 years would mean the increase in payments would be still be 75%. Increasing to a 40 year term (if allowed) would mean the payments would still rise by 70%.   So eventually, the level of interest rates currently being priced into UK bond markets is likely to be painful for the economy and could lead to rate cuts.   But until enough fixed rate mortgage deals have expired to slow the economy and cool inflation, interest rates could continue to move higher.   Where do you think UK interest rates will peak? And how long until they have to be cut? #interestrates #mortgages #economy #inflation

BR is Bullish on Resi Credit: The U.S. residential mortgage market is $14T. When a mortgage is out-of-the-money, the loan trades below par and the prepayment rate is ~3% CPR which means only 3% pre-pay per annum (i.e., owner moves, extra cash flow, death), a low prepayment rate. When mortgage rate fall, homeowner who are in-the-money by 75bs are likely to refinance, CPR jumps to 20%+ given homeowners seek to lower their monthly payment. It’s wonderful news for homeowners, but for those who own premium coupon MBS they are subject to negative convexity. Convexity measures the sensitivity of a bond's price to changes in interest rates. Bonds with positive convexity benefit commensurately to a decline in rates as future cash flows are discounted at a lower rate, making them more valuable. MBS on the other hand have negative convex when the price approaches par as the investment doesn't increase as much from this inflection point due to prepayment risk rising as the bondholder loses the opportunity to earn the higher interest payments and then must reinvest at lower rates. The bar chart below shows the rate distribution for the mortgage universe. As the mortgage rate is now 6.1%, mortgages >6.5% are highly susceptible to early pre-payment. MBS between 5% - 6%, might see prepayments inch up marginally from 3% CPR to 4% as these slightly out-of-the-money homeowners who have felt trapped, now have more flexibility to move since the cost to do so is marginalized. Note that in the U.S., 30-year fixed rate mortgages are priced at spread to 10-year UST (not SOFR or Fed Funds); I expect the 10-year UST rates will decline less than the front end of the curve as the yield curve steepens as the Fed cuts rates. New home sales will benefit in this lower rate environment as will existing homes sales. Be Bullish: lower mortgage rates are net-positive for homeowners/residential credit, home builders, building materials, and mortgage originators.

July’s employment report from the Bureau of Labor Statistics should give the Fed the exclamation point they have been looking for to show that the economy is slowing enough to warrant a rate cut. Market expectations have shifted firmly to a 50-bps interest rate cut at the Fed’s meeting in mid-September, rather than a 25-bps cut which had been the prevailing view prior to this report. Now handwringing will ratchet higher as to whether the Fed is in the process of successfully orchestrating a soft landing or if they have waited too long to shift their monetary policy stance. Job growth slowed more than expected in July and gains in May and June were revised lower. The unemployment rate increased 20 bps during the month and is up 60 bps over the past six months – unemployment rate changes of 50 bps or more over a six-month period have typically corresponded with recessions (see accompanying chart). Wage growth also appears to have slowed over the past couple of months. Even allowing for some volatility in the monthly data, the three-month moving average in employment growth and unemployment show an undeniable softening. Unemployment insurance claims add further evidence to the slowing trend. Initial unemployment claims have ticked higher over the past three weeks and continuing claims are at their highest level since the fourth quarter of 2021. It is difficult to call current labor market conditions weak with the unemployment rate still at 4.3%, but job gains appear increasingly lackluster across major employment sectors and the loss of momentum is undeniable. Stock and bond market participants are reacting in a way that suggests increased recession fears. Earnings reports have only fueled these concerns. The 10-year Treasury rate has fallen materially below 4.0%. Mortgage rates have also been ticking lower, which is good news for prospective home buyers. Rate cuts appear to be on the way, but macroeconomic conditions are increasingly precarious and the Fed’s September meeting may start to feel like a lifetime away if more bad news unfolds. The week ahead is not a busy one from an economic news perspective, but ISM services, mortgage delinquency, Fed Senior Loan Office Survey, and jobless claims, among others will be interesting to watch for additional information on the economy’s trajectory. What indicators are you watching for?

Pending Home Sales Deliver a Major Upside Surprise The National Association of REALTORS® released its Pending Home Sales Report this morning, offering one of the most forward-looking reads on U.S. housing demand. Unlike existing-home sales, which reflect transactions already completed, pending home sales track homes under contract and capture buyer intent earlier in the decision process. Pending home sales jumped 3.3% month over month in November, far exceeding expectations, and rose 2.6% from a year earlier. Gains were broad-based across all four regions, with the Pending Home Sales Index climbing to 79.2 from 76.7, its strongest level in nearly three years after seasonal adjustment. The timing matters. This surge follows last week’s existing-home sales report, which also showed a modest increase. Taken together, the two releases suggest November’s improvement was not simply the clearing of older transactions delayed by earlier rate volatility. Activity appears to be strengthening at multiple points in the housing funnel, from contract signings to closings, pointing to renewed buyer follow-through rather than residual momentum. That distinction carries broader economic implications. Housing is among the most interest-sensitive sectors and often serves as an early signal of shifts in household behavior. Rising pending sales indicate consumers are becoming more willing to make large, long-term financial commitments even as mortgage rates remain elevated by historical standards. Rather than waiting for perfect conditions, buyers appear to be recalibrating expectations and moving forward as conditions stabilize. Improving housing intent tends to ripple outward. Increased contract activity supports demand for mortgage lending, insurance, real estate services, and, over time, spending on home improvement, furnishings, and local services. While this report does not signal a return to excess, it suggests the drag housing has placed on economic growth may be easing. Mortgage rates have eased modestly, wage growth continues to outpace home price gains, and inventory is more available than a year ago. That combination appears sufficient to unlock sidelined demand without reigniting unsustainable acceleration. The picture that emerges is one of adjustment rather than exuberance. Havas Edge tracks pending home sales closely because they reveal shifts in consumer intent and economic behavior before those changes appear in completed transactions, credit data, or broader consumption trends.

The national average mortgage rate is now 6.1%, the lowest in 2 years, and down from 7.2% in May, per a report from Freddie Mac. However, as of July, the average outstanding mortgage rate was 3.9%, barely budging from where it has been for years - per a Weekend WSJ report. In other words, nearly every borrower is sitting on 30-fixed rates they obtained when rates were very low in 2020-2021 or before. So in other words, the September rate cuts are likely to do nothing for the mortgage market. The dynamic hasn't changed; the current (marginal) mortgage rate is over 200 bps higher than the average outstanding mortgage rate. Thus the affordability of housing, which has been a major factor in the increased inflation rates since 2021, is unlikely to be affected - yet - by rate cuts. Your guess is as good as mine as to when it will have an impact. But if I had to guess, I would say that once the 30-fixed hits about 5.25% (i.e., the 10y UST goes down another 50-75 bps), we could see the animal spirits released in the housing market again. It's still 135 bps above the national average outstanding rate, but Americans are optimists. Once the monthly payment feels doable, more people will start to move around again, and do their cash-out re-fi's. And even then we will likely see serious price adjustments along the way both up and down as the supply curve and demand curve dynamic seeks a new equilibrium. The other complication with our housing stock is the lack of supply. Lower rates will drive both home building as well as simply trading up and re-fi's. That is the real need now - more housing supply. Luckily, there has been no uptick in mortgage delinquencies, as we have seen in auto loans and credit cards. Banks learned their lessons in 2008 and underwriting has continued - for the most part - to be strong and generally on the conservative side. For most Americans, home ownership is their greatest source of wealth. So it's an important market to watch, particularly as the Fed continues its rate-cutting cycle into 2025. #fedpolicy #interestrates #riskmanagement

As the Reserve Bank of India’s Monetary Policy Committee (MPC) met from December 3–5, the markets were divided on whether there would be a repo rate cut or another pause. Earlier, Governor Sanjay Malhotra hinted there was “room to cut policy rates,” briefly raising hopes of a 25 basis points cut. However, GDP has been stronger-than-expected, building uncertainty around this outlook. Earlier, repo rate had remained at 5.5%, followed by significant easing when the Reserve Bank of India had cut rates by a total of 100 basis points this year. Now, with the Reserve Bank of India's latest decision to cut the repo rate by 25 basis points to 5.25% marks a positive development for India's housing sector. In my opinion, this is a significant boost for the mid-income segment, which is the backbone of India's housing market today. Here’s what it means for the mid-income homebuyers: 👉The mid-income housing segment, typically covers homes priced between ₹80 lakh and ₹1.5 crore. In the first half of 2025, more than 46,500 units were sold in this bracket, capturing around 27% of the total housing market sales (Knight Frank India data). 👉 Largely comprising young professionals and growing families, this segment is impacted the most whenever there are changes in loan affordability. Any reduction in interest rates spells EMI relief for them, making homeownership more accessible to them. The latest repo rate cut is going to make home loans more affordable and boost purchasing power for mid-income buyers. It will also revitalize consumer confidence and the overall housing demand, thereby strengthening the broader economy. Are you ready to take advantage of this outcome? It could be a good time to explore your best options and make your homeownership dreams a reality. #RepoRateCut #MidIncomeSegment #LoanSavings #LowInterest #HousingDemand #SmartBuying

This week, I shared insights with Bloomberg Radio and Reuters on what to expect for the housing market in 2026. Below is a quick overview, and you’ll find the full analysis—complete with interactive charts to explore your local market—linked in the comments. 1) Affordability improves—mainly via prices and paychecks. Mortgage rates hover in the low-6% range, helpful but not a game-changer. The bigger lift comes from modest home-price growth paired with steady income gains, nudging affordability higher where active listings are more plentiful. 2) “Life happens” demand pushes sales up, slowly. We’re still missing millions of transactions relative to the pre-pandemic norm, leaving pent-up churn. With ~52 million Americans in their thirties—and millennials projected to add ~10.6 million owner households over time—life events (marriage, kids, caregiving, job moves) keep transactions grinding higher even if rates only edge down. 3) A two-speed map persists. Lean inventory in the Northeast and Midwest keeps conditions tight and price growth steadier. Many Southern and Western metros carry more supply—22 of the 75 largest markets already sit above their 2018–2019 active-listing baseline, concentrated in Florida and Texas—so pricing is more negotiable. 4) Stress pockets, not a foreclosure wave. Measures of strain have risen off the floor, but broad distress typically needs both income loss and no equity. The labor market has cooled—not cracked—and sizable homeowner equity keeps risk contained; weakness is likelier where affordability is stretched, insurance has jumped, or local job growth has softened. 5) Inventory climb as rate-lock loosens at the margins. Inventory has picked up in 2025, even if the pace of growth has slowed recently. Expect a steady rise in 2026—uneven by region, helped by completions and any incremental rate relief. 6) New homes keep the edge. Builders stay cautious on starts and focus on selling standing inventory; incentives like rate buydowns help meet buyers where they are. With many owners still rate-locked, builders retain a relative advantage until competition from resale supply normalizes. Bottom line: 2026 delivers progress without a breakout—modestly better affordability, a gradual rebound in activity, persistent regional divergence, contained risk, rising supply, and a continued new-home edge. Link to Reuters segment: https://lnkd.in/egbjdPJ7

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  

House prices rising?? ... the lender house price indices have been picking up some firming in house prices over October. Our data shows new sales agreed have picked up over October, especially in #London as those that need to move make their moves and agree new sales. Nationally, sales agreed in the last week are 12% higher than this time last year as the mini #budget and higher rates hit demand and sales. This modest increase in activity and sales could be enough to stop indices falling and give them a short term boost. For those buying at low LTVs mortgage rates are now sub 5% for most major lenders. If you can negotiate a good price then there are deals to be done. There are more homes for sale per estate agent now than we have seen for more than 3 years meaning plenty of choice for buyers serious about moving. Our latest data shows 23% of new sales agreed are at more than 10% below the initial asking price - reaching levels last seen in 2018. Another 25% of sales are being agreed at 5-10% below the asking price. Half of sales are being agreed at <5% below the asking price meaning a decent group of sellers are being more realistic on pricing. We are on track for 1m sales in 2023 but the pipeline of deals is less than this time last year which is why we see another 1m sales next year. There is upside for sales volumes and changes in sentiment around mortgage rates will be key - the more 5 year fix rates move into the mid to lower 4%'s the more buyers will return to the market. We don't expect any rabbits to be pulled out of hats in the autumn statement to boost the market in the short term - the focus needs to be on boosting supply and new housing delivery and getting inflation down to ease the pressure on #mortgage rates #ukhousing #btl #property #estateagents #newhomes #hpi