Key facts
- Mortgage rates could reach 8% if the conflict in Iran worsens, oil prices stay near $100, and economic data remains solid.
- A scenario for 8% mortgage rates would involve the 10-year yield pushing toward 5.40%, a level last seen in March 2002.
- Mortgage rates could fall to 6% if the bond market perceives a slowdown in the labor market and economy, and the conflict ends.
- The base case forecast for mortgage rates is between 6.50%-6.75% if the conflict ends and oil prices decrease.
- The worst-case scenario, with the conflict worsening, predicted mortgage rates between 7.13%-7.18%, a level already surpassed with the week closing at 7.20%.
Mortgage rates are currently hovering above 7%, a level that was not expected to be sustained until 2026 according to earlier forecasts. However, ongoing geopolitical conflicts, particularly with Iran, have pushed oil prices to $100 and contributed to inflation remaining above target. Despite a 4.1% unemployment rate and low jobless claims, the Federal Reserve has initiated a new rate-hiking cycle, influencing the trajectory of mortgage rates.
Logan Mohtashami, Lead Analyst at HousingWire, discussed these factors on the HousingWire Daily podcast, outlining scenarios for mortgage rates to reach 8% or fall to 6%. The case for 8% hinges on the worsening of the conflict, potentially pushing the 10-year Treasury yield towards 5.40%, a level not seen since March 2002. This scenario would also require mortgage spreads to widen slightly and the Federal Reserve to remain silent on rising long-term yields.
Conversely, rates could decline towards 6% if the bond market perceives a significant slowdown in the labor market and the broader economy, coupled with an end to the conflict and a decrease in oil prices. Mohtashami's base case forecast, assuming the conflict concludes and oil prices fall, projects mortgage rates between 6.50% and 6.75%, with the 10-year yield returning to 4.48%. He noted that the current market conditions, with rates already at 7.20%, have already reached his previously outlined worst-case scenario.