Market Moves Defy Headlines: What It Means for Mortgage Rates
While it’s been a few weeks since our last market update, recent movements in rates and equities might imply that everything has been business as usual. However, considering events like the precision bombing of Iranian nuclear facilities, fears of sleeper cell retaliation, the ongoing Russia-Ukraine conflict, and President Trump’s unconventional tariff negotiations, we would have expected lower rates and lower equities—not the opposite. Markets, nonetheless, have a remarkable way of looking past negative headlines and focusing on the future (at least most of the time).
Interest rates are drifting higher as tariff threats escalate. Companies without pricing power are currently absorbing increased costs, potentially pressuring earnings later in the year. Tariff negotiations are far from over, and it will be interesting to see how the bond market digests the potential for rising tariffs, slowing earnings, and higher unemployment.
Meanwhile, the White House has made no secret of its dissatisfaction with Fed Chair Powell. While we’re always in favor of lower rates, we don’t expect a dramatic 300-basis-point cut to the Fed Funds Rate. Our base case calls for one or two cuts, with the Fed Funds Rate settling around 4% and inflation climbing to roughly 3%. That being said, banks, alternative lenders, and private credit shops are beginning to lower note rates on high-quality loan scenarios. Here are a few recent quotes:
- Luxury SFR purchase (30% down): 5/6 ARM at 5.25%
- Luxury SFR cash-out refi (boutique bank): 7/6 ARM at 5.60%
- Bridge loan (purchase, moderate leverage): 18-month interest-only at 8.99%
- Community-focused program (underserved market): 30-year fixed at 5.70%
- 10-unit apartment building (regional bank): 5/6 ARM at 5.85%
On the housing front, the growing stress is apparent as inventory remains low and buyers remain hesitant, facing a double-whammy of elevated home prices and interest rates. Still, markets like Austin, TX and South Miami, FL show meaningful price corrections as more inventory becomes available. This is a trend we expect to continue nationally.
Los Angeles has slowed, but activity remains strong in more affordable submarkets, where well-priced homes are attracting multiple offers. Refinance activity has picked up as many borrowers’ ARMs from the 2020 low-rate cycle begin to reset. This could result in additional inventory as some homeowners, now facing much higher payments, consider selling—especially with today’s higher cost of living. We’re keeping a close eye on oil prices, the 10-year Treasury yield, and bank earnings as key signals for where the broader economy is headed. This remains a very tough market to handicap.
