Mortgage rates going up. Is the market expecting inflation?

[Marcus Auerbach]

Rates are supposed to go down. All the major forecasts for mortgage rates are still pointing slightly down for 2025. But ever morning for the last 2 weeks I see the 10 year T-bill up another 10 basis points or so, and the mortgage market is following suite. This time of the year we are talking about strategy and goals for our REI for next year and frankly, I am not sure where to go from here.

The last forecasts I have seen from major banks and the MBA are still expecting rates in the 5.9%-ish range for spring 2025 (Q2) and that does not make any sense to me given what I see. Even more interesting is the yield curve, which currently seems to be in the process of un-inverting (?) with an interesting U-shape, but short-term money is still more expensive than long-term (https://www.ustreasuryyieldcurve.com) . 

Are the markets pricing in an expectation of inflation? M2 has not come down much since it's post-COVID peak and national debt as a percentage of GDP is at a record high.

[Nathan Gesner]

Quote from @Marcus Auerbach:

Are the markets pricing in an expectation of inflation? 

Expectation? You mean the inflation that's already here and downplayed by half the country?

Our economy hasn't made sense for four years. I expect we'll see that change dramatically by June 2025.

[Marcus Auerbach]

What do you expect to happen by June @Nathan Gesner? More inflation than at the moment?

[Nathan Gesner]

Quote from @Marcus Auerbach:

What do you expect to happen by June @Nathan Gesner? More inflation than at the moment?

I expect the economy to recover quickly under new leadership. 

[Pat Parrillo]

@Marcus Auerbach Great question! I think the shift toward risk-on assets is lowering demand for safer investments like T-Bills, especially as investors look to outrun inflation beyond what CPI numbers reflect. With more focus on the inflation of the money supply, investors are allocating less to Treasuries, pushing bond prices down and yields up since they move inversely.

Mortgage rates which are closely tied to the 10-year Treasury yield, are rising as those yields climb. This likely reflects reduced demand for T-Bills, heightened inflation expectations, and increased Treasury supply, all contributing to higher mortgage rates and a tougher environment for buyers.

There’s likely more at play here, but I agree it’d be great to see mortgage rates head in the other direction sooner rather than later.

[Zach Wain]

All of the mortgage rate forecasts are probably a little dated and the next time they update the projections will go up.  With a GOP sweep, everyone was predicting that would be bad for rates.  If spending cuts are not enough to pay for big tax cuts that will make the deficit worse, and possible tariffs/price increases.

Lets hope Elon and Vivek and have a monumental reduction in Gov't spending.  Lets debt = less Treasury issuance = less supply = lower yields

The market is in an wait and see mode.  But, when 1 party has a clean sweep that means a lot of legislation gets passed, and that spokes the markets.  

[Bryan Maddex]

Mortgage rates almost ALWAYS go up after the first Fed rate cut! This is normal!  If you looked at rate projections in the spring and summer, many accurately predicted that rates would fall in 3rd quarter and rise in 4th quarter. The Fed rate cuts will eventually help bring down mortgage rates. On average, we see rates eventually drop to around 37% lower than where they started at the 1st cut by the end of the rate cut cycle. Current prediction is rates will land in the high 4s in 2 to 3 years. Markets, geoglobal conflicts, recession, inflation, jobs can all affect that but time will tell. 

[Chris Seveney]

@Zach Wain

We also need to be careful what we wish for. Our over inflated government is driven by way too many jobs. Once they cut the govt spending that is going to equate to negative job growth most likely for periods of time. This will put downward pressure on mortgage rates and housing pricing.

It’s necessary but it’s going to be painful for many

[Mike Dymski]

US treasury rates increased ~80 basis points since the beginning of October as polling results started coming in and the increase continued post-election in expectation of high government deficits and sustained inflation (due to tariffs and otherwise).  My response is not political in nature...I'm very interested in what DOGE can accomplish.  I'm just stating the facts as I follow rates closely for my job.

[V.G Jason]

Not to derail from this thread, but this was expected. See discussion here.

https://www.biggerpockets.com/forums/530/topics/1210625-fed-...

10-year will trend up, before down. I don't expect a swift recovery from Trump, without some extreme pain. Fast solutions have slow problems. I expect a slower than expected unraveling, as in not within 1 year but closer to 18-30 months. If DOGE comes in and rips spending like an animal, we'll see some extreme pain. @Chris Seveney is 100% right. 

Negative job growth, flat to negative GDP growth. The market since COVID has reacted incredibly over reactionary on the way up & down, so I expect a K-type recovery in certain pockets but it be just profound and quicker than the yesteryears(3-4 type fall in GR, 5yrs + in GD). See it sub 2.5 years, closer to the 1.5 year part. Maybe even 6-ish months, that would not surprise me. 

The 10 year is everything we're watching here. It's crazy to think some RE agents are suggesting owners to put their houses up cause fed funds reduced, they completely misunderstand but I let the market do what it does-- market. I'm eyeing a 4.6 before we see real trending downwards, but as usual just a projection never really know. And it staying elevated until end of Q1 25 at least. 

[Bryan Maddex]

Strong jobs reports had a larger effect on the 10 year treasury, followed by strong retail sales numbers, followed by EU inflation numbers, then followed by election results but honestly election results only affected rates for a couple of days.

Lots of pressure on treasuries from the level of debt the US is carrying, but remember the Fed is also still doing quantitative tightening (while cutting rates) which is additional upward pressure on rates. It's possible rates have peaked based on trading flat and taking a downward turn last week! Fingers crossed! 

[JD Martin]

I can't speak to rates - I think eventually they come down out of sheer necessity - but as far as the economy we must be living in an insulated bubble up here in Northeast Tennessee; no one has bothered telling us the economy is bad. We have record employment, all of our retail is booming, housing is still selling. Personally, all of my units are full and have stayed full, no one is even late with rent much less behind, and no one is moving. All of our restaurants are full. The funny thing is when I go to my house in Florida I see the exact same thing. 

Anyone on here chime in on their local bad economy? I don't travel much anymore so I don't get to see a lot of things in person. 

[Marcus Auerbach]

Quote from @Bryan Maddex:

Mortgage rates almost ALWAYS go up after the first Fed rate cut! This is normal!  If you looked at rate projections in the spring and summer, many accurately predicted that rates would fall in 3rd quarter and rise in 4th quarter. The Fed rate cuts will eventually help bring down mortgage rates. On average, we see rates eventually drop to around 37% lower than where they started at the 1st cut by the end of the rate cut cycle. Current prediction is rates will land in the high 4s in 2 to 3 years. Markets, geoglobal conflicts, recession, inflation, jobs can all affect that but time will tell. 

I did not see a forecast for rising rates in Q4? Who is the source? 

The latest forecasts I have seen are from before the election and they were all expectation lower rates. MBA is the Mortgage Banker Association if you are not familiar. This chart does not include the latest increase in rates, but in a couple weeks we should have an update.

[Marcus Auerbach]

Quote from @JD Martin:

I can't speak to rates - I think eventually they come down out of sheer necessity - but as far as the economy we must be living in an insulated bubble up here in Northeast Tennessee; no one has bothered telling us the economy is bad. We have record employment, all of our retail is booming, housing is still selling. Personally, all of my units are full and have stayed full, no one is even late with rent much less behind, and no one is moving. All of our restaurants are full. The funny thing is when I go to my house in Florida I see the exact same thing. 

Anyone on here chime in on their local bad economy? I don't travel much anymore so I don't get to see a lot of things in person. 

Same here, JD. I believe it is a larger issue than what we define as the economy, which is mostly measured in corporate profits and Wall Street performance, this is not what the average person perceives. When economists say inflation is down, consumers say: where? I still don't have enough money. 

So there is a big sense of dissatisfaction. And IMO that has been decades in the making.

I saw a recent survey of 4000 Gen Z and they said thay would need to earn 270k to feel financially successful. Social media is not helping here. They objectively do not have the same opportunity as Boomers did. College used to be a lot more affordable, I studied in Europe (where college is free) and it blows my mind to see kids with 200k student loan debt trying to get ahead on a 50k job.

The housing market has started to drift apart geographically. Florida's West coast or Austin TX are seeing 5+ months of listing inventory and declining home prices. My market Milwaukee is still low inventory and competitive offers.

10Y T-bill is flat at 4.412% this morning, so we may see mortgage rates stay flat this week too?

[Paul Azad]

Every nation's 10-30 yr treasury bonds are a reflection of only two factors. Risk of future inflation, and projections of gross domestic product. When you add those together that's typically your 10 year yield, currently projecting 2% inflation and two and a quarter to 2.5% GDP growth near term, Bond market has felt that FED cut 8 weeks ago too much and too early, thus risking return of inflation. Add in Trump, who printed 3 Trillion and mailed to people with his name on the checks just 5 years ago, and the Bond market has been guessing higher inflation risk component. 

But market always buys the rumor and sells the fact, so 10yr should fall soon to around 4, or even lower if PCE print Wednesday is lower than expected. 

Longer term, meaning next 30-40 years, Bond market will do what its always done to runaway Fiscal looseness and it will take 10yr up to 10 -16% to put pressure on FED to deleverage the last 45 years of crazy spending, like it had to do from '45 to '82, or 1900-1925, slow and gradual. 

Or maybe FED will just keep printing Trillions and Bond investors will for some strange reason or blind generosity only demand 3-4% on 10-30yr shaky loans. Now that's funny :)