
𝐓𝐗𝐌𝐂|Mar 30, 2025 01:46
Let's run an exercise.
Mortgage rates are strongly linked to the 10yr at a long-term avg spread of 1.5%-2% (currently way above at 2.3%).
For mortgage rates to sustain lower, 10yr yields have to fall. The 10yr is basically even with Fed Funds so let's assume no additional spread between FFR and 10Y (but there would usually be additional ++ spread).
For mortgage rates to get from 6.6% to, say, 5%, the Fed would need to cut 150 basis points (=2.75-3% Fed Funds) AND the 10yr would need to NOT bull steepen but simply follow it down 1:1. That's NOT how the 10yr always works, but pretend it is.
If that somehow happens and mortgage rates get to 5%, you still have 70%+ of all outstanding mortgages in the United States with a lower locked-in rate. They would have little motivation to act. Do not underestimate just how much refi activity happened in 2020 thru early 2022. Historic, and it happened at the lowest rates in American history.
For mortgage rates to get BELOW 5%, the Fed would *probably* need to cut 200+bps AND the 10year would need to get below 3%. The ONLY TIME the 10year has EVER been 3% or lower was from 2012-2021 during the lowest inflation period globally since the 1930s. That is probably not happening again without a Depression-like event. Read that again. Mortgage rates will get nowhere near a stimulative level without significant economic hardship, and how much appetite does Washington have?
What is the point here? That the inertia within US housing is ENORMOUS. Without a Massive Slowdown (capital M capital S) in the economy, rates will get nowhere close to low enough to catalyze a refinancing wave that taps into those trillions of homeowner equity.
To be fair to Samantha, a refi wave is not explicitly what she calls for, but it's worth considering as we talk through the potential pathways for reaccelerating the economy after whatever results from the trade war.
It appears the administration wants to create a recession or at least a recessionary feeling environment. But the issue, as ALWAYS, is that we are not in the deflationary climate pre-covid. That time is over. Getting the 10year down without notable LASTING SPENDING CUTS and without a Depression-like slowdown will be a Herculean task.
Covid really did fucking break everything.
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