💵 Mortgage & Interest Rate Analysis

• Warsh Nomination - Kevin Warsh cleared a key Senate Banking Committee hurdle on his path to becoming the next Fed Chair, but that does not mean rate cuts are coming quickly. The bond market remains the real driver of mortgage rates, and elevated inflation, energy uncertainty, and resilient job growth make near-term cuts difficult. Some market commentators say there is ‘no chance’ Warsh will cut rates and even predict rate increases on the horizon.

🔮PREDICTIONS

Results of last month’s predictions:

1. 🛢️ Oil Prices - We predicted that oil will be above $110 at the end of April. 

   ❌ Wrong - Oil ended at $101.94 at the end of the month. There were some wild swings, and oil reached $112.95 at one point, but prices have settled in recent weeks as a potential end to the Iran war seems possible.

2. 💲April Mortgage rate - We expected the 30-year rate to remain above 6.25% in April. 

   ✅ Correct - Rates got down to 6.29% but have hovered around 6.5% for the majority of the month.

🎯New Predictions:

1. 🏦🪑 Mortgage Rate Intervention - This is a longer-term and bolder prediction. We see a possibility that the Fed changes its balance sheet approach to the mortgage market before the end of the year. The Fed has been allowing $25 billion worth of mortgage-backed securities (‘MBS’) to run off its balance sheet each month. If Warsh becomes Fed Chair and wants to ease mortgage pressure without immediately cutting short-term rates, one available lever would be to slow or redirect MBS runoff.

   Our prediction: the 30-year mortgage rate drops below 6% before year-end, not because inflation disappears, but because policymakers look for creative ways to lower mortgage rates.

2. 💲 May Mortgage Rate - We expect the 30-year rate to remain above 6.25% in May. Inflation pressures remain, and no significant policy changes appear likely to lower rates over the next 30 days.

3. 🛢️ Oil Prices - We predict oil prices will remain elevated. Oil is currently trading at 94.90. We predict oil will remain above $90 at the end of May. Prediction markets are pricing in a 50/50 chance that the Iran war ends and the Strait of Hormuz opens by the end of June.

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