The 30-year fixed interest rate for traditional loans was 7.03% at the time. daily mortgage news as of Thursday morning. housing wire mortgage rate center optimal blues The 30-year fixed rate on traditional loans was 6.73% on Wednesday, up from 6.50% on Wednesday.
“Although the likelihood of default remains low, the fear and panic associated with potential government defaults may also cause creditors to demand higher interest rates from the U.S. Treasury, resulting in Various borrowing costs could increase significantly,” said Xu, an economist. realtor.comsaid in a statement.
Xu added: “An early resolution of the debt stalemate would mitigate the potential harm to the housing market, which is already battling higher prices and higher mortgage rates. ”
George Latiou, Chief Economist keep things currentagrees that the probability of default is “virtually zero,” but increases the existing risk reflected in the spread between 10-year Treasuries and Freddie Mac’s 30-year mortgage rates.
Spreads averaged 172bps from 1971 to 2023, but reached 278bps from January to May 2023. The only time spreads exceeded 300 bps was during periods of high inflation and economic volatility, such as the early 1980s and World Wars. The financial crisis of 2008-2009.
“Investors are reacting to the political brinkmanship around the debt ceiling, which adds further uncertainty to the financial outlook,” Latiou said in a statement. “Mortgage bond investors are demanding higher yields in exchange for increased risk awareness.”
But a debt ceiling deal may not mean less volatility in the economy. The US could still face a long-term debt downgrade. on wednesday, Fitch rating We put the US ‘AAA’ rating on negative watch.
“Fitch still expects the debt ceiling to be resolved by the deadline. We believe there is an increased risk that they may begin to default on payments,” the rating agency wrote.
Next steps for the Fed
Another source of uncertainty is federal reserve(Fed) monetary policy. Officials are scheduled to meet on June 13-14 to decide on a new federal funds rate. And even though mortgage industry experts believe the Fed is likely to end its tightening policy, the still-resilient economy offers the possibility of another rate hike.
“Further focus revolves around the release of the minutes of the Federal Reserve Board’s May meeting. Investors expect a pause at the next meeting after 10 consecutive rate hikes. The minutes revealed a sense of uncertainty about the future direction of monetary policy,” Xu said.
Latiou added that the Fed’s intention to pause monetary tightening at its June meeting, as announced by Chairman Jerome Powell, could provide a welcome reprieve for financial markets.
“But the Fed is clearly looking at the double peak of inflation in the late 1970s and early 1980s to avoid making the same mistake,” Latiou said. “For those who think the central bank is done raising policy rates, the upward trajectory of inflation may be a counterpoint.”
Freddie Mac chief economist Sam Cater said the U.S. economy continued to show resilience, which combined with debt ceiling concerns led to higher mortgage rates this week.
“Declining affordability remains a problem for interested homebuyers, and homeowners appear reluctant to move away from low interest rates and put their homes on the market,” Carter said in a statement. “If this predicament continues to constrain supply, it could open up an opportunity for builders to address the country’s housing shortage.”
