The longer this aggressive uptrend goes on, the more it feels like 8% mortgage rates are inevitable.
By some accounts, we are only about a half of a percentage point away.
And given the current climate, which feels very much like a higher for longer scenario, it wouldn’t take much to get a nudge back above 8%.
Of course, simply getting back to 8% isn’t the be all end all.
Perhaps what matters more is how high we go and how long we stay at elevated levels.
It Feels Like 8% Mortgage Rates Are Inevitable
I was on the fence for a while about how high mortgage rates would go.
It seemed like the recent move higher was a bit overdone (and it still may be), but without any sort of “brakes,” perhaps nothing stops this train.
We’ve got mounting government debt, sticky-high oil and energy prices due to the war, and what feels like another major bout of inflation.
Unless any of those things change, why would mortgage rates move materially lower?
The answer is they probably wouldn’t. And lately it doesn’t feel like there are any leads in any of those categories.
The deficit and related spending are out of control and are unlikely to be reined in.
The war you barely even hear about these days, which makes it feel more and more entrenched.
And inflation, despite the odd report that’s below forecast still seems like a major problem, especially because of the unresolved conflict in the Middle East.
Taken together, it’s hard to imagine mortgage rates coming down meaningfully.
Conversely, it’s quite easy to imagine them rising even higher from here.
How High Will Mortgage Rates Go?
Lately, I’ve heard all types of doomy scenarios regarding mortgage rates, with some saying double-digits for the 30-year fixed aren’t out of the question.
I don’t think it gets that bad, though I do see more upward movement this cycle before things cool off.
In a prior post, I laid out a scenario where mortgage rates experience a double-top like they did in the early 1980s.
We’ve got somewhat similar conditions today compared to back then with regard to inflation and an energy crisis, but arguably not nearly as bad.
Still, if that scenario plays out, you get a 30-year fixed around 8.88%. Not so lucky. Or maybe it is…
That would take a fairly considerable rise in 10-year bond yields along with wider mortgage spreads relative to Treasuries.
To get to 8.88%, you’d need a 10-year yield north of 6% (currently around 5.20%) and a spread maybe around 280 basis points (currently closer to 230).
Is it possible? Sure. Is it probable? That’s another question.
We’ll need more of the same high energy prices, war escalations (or at least not improving).
And heightened inflation along with continued government spending (easy) and AI build-out.
The mortgage rate spreads can also widen due to volatility if rates are surging higher, creating a one-two punch.
How Long Will the High Mortgage Rates Last?
To me, this is the more important question.
Who cares if we get 8% mortgage rates again if they only last for several months?
Sure, it’d be a temporary blow and everyone would make a big thing of it in the media, online, etc.
It would impact home sales too, along with loan origination volume (not that it hasn’t already).
But if it proved to be short-lived, it wouldn’t matter all that much.
More concerning would be if mortgage rates find new footing at higher levels and stay there.
Then you’ve got some real problems for the housing market and the industry at large.
Either way, the solution is to end the war and control the spending so we can get inflation and bond yields lower, and thereby mortgage rates too.
Next: Compare different monthly payments and interest rates with my mortgage rate calculator.
(photo: andressolo)
