🏡 Mortgage Rates Could Hit 8%

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Kyle Seagraves & Dan Frio
October 04, 2023

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1. Mortgage Rates Surge Toward 8%

The average rate on 30-year fixed mortgage rises to 7.72%

  • 🏡 Impact on housing market: Higher rates have cased sales to drop and hit affordability

  • 📊 Reason for rate increase: Mortgage rates follow the yield on the 10-year Treasury, which has been climbing

  • ⬆️ Potential future rates: Rates may cross over 8% due to strong economic data and the possibility of another interest rate hike

  • 💸 Impact on monthly payment: Compared to rates at 3% during the pandemic, monthly payments for a $400,000 home with 20% down payment are now about $930 higher

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2. Mortgage Rates Freeze Housing Activity

Zillow economists predict a 5% increase in home prices over the next year due to high mortgage rates

  • 💵 Home Price Increase: Zillow predicts a 4.9% increase in home prices by August 2024

  • ❄️ Reason for Increase: High mortgage rates are prolonging the freeze of the housing market

  • 😡 Impact on Buyers: Higher mortgage rates make borrowing more expensive for prospective home buyers

  • 😮 Impact on Sellers: High mortgage rates discourage homeowners from listing their properties for sale, exacerbating the shortage of supply and pushing up prices

3. $275 Monthly Student Loan Payments to Resume in October

Student loan payments resuming will modestly impact mortgages

  • 🔥 Effect on consumer loan asset quality: Federal student loan payments resuming on Oct. 1 will negatively affect consumer loan asset quality, including credit card, auto, and residential mortgages.

  • 🏦 Overall impact: The overall effect of student loan payments resuming will be modest, according to a Moody's Analytics report.

  • 💸 Borrower burden: 24 million borrowers will owe an average of $275 per month when federal student loan payments resume.

  • 💼 Consumer loan performance: Job market conditions remain the primary driver of consumer loan performance

4. Case-Shiller: National Home Prices Rise 1%

National House Price Index increased by 1.0% year-over-year in July, reaching a new all-time high.

  • 🏷️ Price: National House Price Index increased by 1.0% year-over-year in July

  • 🏢 Cities: Prices increased in all 20 Case-Shiller cities on a month-to-month basis

  • 🏦 FHFA Index: FHFA House Price Index rose 4.6% from July 2022 to July 2023

  • 🗺️ Regional Differences: Chicago, Cleveland, and New York were the best-performing metropolitan areas, while Las Vegas and Phoenix were the worst performers

5. What Happens If the Government Shuts Down?

  • ✅ Conventional and Jumbo loans will not be affected

  • ✅ FHA will limit staffing. However, most lenders will continue funding FHA loans

  • ✅ VA will continue guaranteeing loans

  • ❌ USDA would stop guaranteeing new loans

6. Fed's Mester Open to Another Rate Hike

Cleveland Federal Reserve President Loretta Mester is open to raising interest rates again if the current state of the economy holds.

  • 📈 Mester's stance: Mester is open to another rate hike if the economy remains stable

  • 🔮 Policy outlook: Mester cannot predict the outcome of the November and December meetings

  • 💸 Inflation and rates: Mester believes inflation pressures are still too high and expects inflation to return to 2% by the end of 2025

  • 📊 Bond yields: Surging bond yields will influence policy decisions and impact the economy.

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