Fed cuts not the key: Workers will decide mortgage rates, expert says

The Federal Reserve's recent rate cut has set the stage for potentially lower mortgage rates, but industry experts are looking beyond central bank policy to assess where rates could fall by the end of the year.

According to Logan Mohtashami, principal analyst at HousingWire, the strength (or weakness) of the labor market will determine how low mortgage rates can go.

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“The mortgage spread story has been positive in 2024, while it was negative in 2023,” Mohtashami wrote in an analysis published this week. “We have seen a great movement, which has helped, and we still have some way to go to return to historical norms. This can help reduce mortgage rates to 5.75%.”

Earlier in the year, Mohtashami forecast a range of 5.75% to 7.25% for 30-year rates by the end of 2024. Now, with the average 30-year conforming loan rate at 6.18% at As of Wednesday, according to Mortgage News Daily, that prediction is looking increasingly likely.

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The recent downward trend in rates has breathed some life into the housing market, with purchase applications rising for four consecutive weeks – the longest streak of the year, according to the report. However, the impact on home sales has been mixed.

While new home sales are on an upward trajectory, existing home sales continue to struggle, falling 2.5% month over month in August, according to the National Association of Realtors.

Noah Rosenblatt, co-founder of UrbanDigs, a real estate analytics firm, warns that the housing market has yet to fully stabilize. “We still have election uncertainty, local political uncertainty and geopolitical uncertainty weighing on the minds of investors and buyers that could slow the depth and duration of this recovery,” Rosenblatt said.

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Adding to the problem is the fact that many current homeowners are reluctant to sell and accept higher-rate mortgages. A Redfin analysis of Federal Housing Finance Agency data cited by HousingWire showed that six in seven mortgage holders have rates below 6%, creating a “lock-in” effect that is constraining inventory.

While upcoming economic data releases, including GDP and the Personal Consumption Expenditure Index, are unlikely to move the needle on rates, according to Afifa Suburi, capital markets analyst at Veterans United Home Loans, all eyes They are in the labor market.

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Kevin Ryan, Better's chief financial officer, noted in an interview with HousingWire that Fed policymakers seem more concerned about the labor market than inflation right now. “Presumably the Fed will continue to rely on data within this recalibration issue,” Ryan said. “I see a real estate sector that is slowly thawing. “If you wake up in 18 months, you will have materially lower rates.”

As the year progresses, labor market data, Federal Reserve policy and mortgage spreads will determine whether rates can fall below Mohtashami's forecast range.

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