Key facts
- Mortgage rates could reach 8% if geopolitical conflict worsens, oil prices remain high, and economic data is strong.
- A scenario for 8% mortgage rates would require the 10-year Treasury yield to approach 5.40%.
- Rates could fall to 6% if the labor market and economy slow significantly and geopolitical conflict ends.
- The base case forecast for mortgage rates is 6.5% to 6.75% if the conflict ends and oil prices decrease.
- Worst-case scenarios predicted rates between 7.13%-7.18%, a level already surpassed.
- Approximately 40% of U.S. homes have no mortgage, and homeowner equity is higher than during the housing bubble.
Mortgage rates are expected to remain elevated due to a confluence of factors including geopolitical tensions, inflation pressures, Federal Reserve policy, and mortgage spreads, according to Logan Mohtashami, Lead Analyst at HousingWire. Speaking at the American Credit Union Mortgage Association's Make Your Mark Conference, Mohtashami outlined scenarios for mortgage rates, suggesting they could reach 8% if conflict in the Middle East escalates and oil prices remain high, pushing the 10-year Treasury yield towards 5.40%.
Conversely, rates could decline to around 6% if the bond market perceives a significant economic slowdown and the geopolitical conflict concludes. Mohtashami's base case forecast anticipates rates settling between 6.5% and 6.75% if the conflict ends and oil prices decrease.
Mohtashami noted that mortgage spreads have improved from their worst levels in 2023, which, if they persisted, would place current mortgage rates significantly higher. He also highlighted that the housing market is showing signs of healthier conditions, with cooling home price growth and increasing inventory, and disputed comparisons to the 2008 financial crisis, citing higher homeowner equity and lower loan-to-value ratios.