9% mortgage rates unlikely despite worst-case scenarios, analyst says

The possibility of mortgage rates reaching 9% within the next 12 months has been raised, though analysts suggest it is an unlikely worst-case scenario. For such rates to materialize, several significant economic and geopolitical factors would need to align.

According to economist Selma Hepp, a key requirement would be a robust US economy experiencing sustained growth of at least 5%-7% in nominal terms, with no slowdown in consumption or weakness in the labor market. Additionally, elevated oil prices would need to persist, potentially driven by the ongoing Iran conflict, with markets believing no resolution is imminent. The Federal Reserve would also need to maintain a hawkish stance, hiking rates beyond current market expectations.

Furthermore, the 10-year Treasury yield would have to climb above 6%, and mortgage spreads would need to widen significantly from their current levels. The author argues that the current conditions, with the 10-year yield below 6% and stable mortgage spreads, do not support 9% mortgage rates.

The author concludes that while higher mortgage rates are a concern for the real estate sector, the specific combination of factors required for rates to reach 9% is improbable. Even reaching 8% is considered difficult. The geopolitical situation, particularly the duration of conflicts and potential political pushback, is seen as a limiting factor.